The  True  Nature 
of  Value 


RDFUS  FARRINGTON  SPRAGUE 


LIBRARY 

THE  UNIVERSITY 
OF  CALIFORNIA 

SANTA  BARBARA 


PRESENTED  BY 


LEO   U.    LOMBARD! 


THE   TRUE  NATURE  OF  VALUE 


/THE  TRUE  NATURE 
OF  VALUE 


BY 

RUFUS  FARRINGTON  SPRAGUE 


Chicago:  The  University  of  Chicago  Press 
1907 


COPYBIGHT  1907  BY 
THE  UNIVERSITY  OF  CHICAGO 


Published  December  1907 


Composed  and  Printed  By 

The  University  of  Chicago  Press 

Chicago,  Illinois,  U.  S.  A. 


PREFACE 

It  was  not  until  the  early  yo's,  when  the  money 
question  had  become  a  political  issue  of  suffi- 
cient gravity  to  overshadow  other  questions 
growing  out  of  the  Civil  War,  that  it  had  more 
than  a  passing  interest  for  the  average  citizen 
and  voter.  Prior  to  that  time  I  had  vaguely 
shared,  or  at  least  had  not  rejected,  the  popular 
belief  that  the  premium  on  gold  was  largely  or 
wholly  due  to  the  speculative  manipulations,  or 
traitorous  machinations,  of  a  powerful  but  un- 
scrupulous group  of  rebel  sympathizers  on  the 
stock  exchange.  Indeed,  I  think  I  was  at  one 
time  disposed  to  agree  with  those  who  advocated 
punishment  for  those  who  were  responsible  for 
this  apparent  evil.  I  say  "apparent"  evil 
because  I  was  so  situated  that  I  could  not  help 
perceiving  that  as  the  premium  on  gold  rose  or 
fell,  staple  products,  both  agricultural  and 
manufactured,  domestic  and  foreign,  tended  to 
advance  or  decline  proportionately.  While  the 
popular  tendency  was  to  regard  each  increase 
in  the  premium  on  gold  as  objectionable,  ad- 
vances in  the  prices  of  other  products,  especially 


vi  PREFACE 

those  of  domestic  origin,  obviously  had  their 
compensations. 

Finally,  it  began  to  dawn  upon  my  mind  that 
there  might  be  some  truth  in  the  contention  of 
those  who  maintained  that  the  premium  on  gold 
was  largely,  if  not  wholly,  due  to  the  fact  that 
its  value,  like  that  of  other  commodities,  was 
expressed  in  terms  of  a  depreciated  currency, 
and  that  it  was  not  gold  that  went  up  but  cur- 
rency that  went  down,  and  vice  versa.  Evi- 
dently there  were  two  sides  to  the  money  ques- 
tion, and  I  became  imbued  with  a  desire  to 
investigate  it  more  thoroughly. 

I  soon  arrived  at  the  conviction  that  since 
money  was  universally  accepted  as  the  standard 
of  value,  the  only  way  to  have  a  perfect 
understanding  of  the  money  question  was  to 
discover  exactly  what  was  meant  by  the  term 
"value."  The  most  common  definitions  of  this 
term  at  that  time  were  "power  in  exchange" 
and  "purchasing  power,"  but  they  did  not 
make  clear  what  constituted  or  conferred  value, 
nor  what  measured  it.  I  accordingly  read  work 
after  work  by  the  leading  authors  on  the  subject, 
but  without  being  able  to  find  any  exposition 
of  the  nature  of  value  that  appealed  to  me  as 
correct  or  complete,  or  one  that  furnished  a 
practical  working-theory  applicable  to  the  busi- 


PREFACE  Vii 

ness  affairs  of  every-day  life — a  test,  by  the  way, 
by  which  every  theory  of  value  will  ultimately 
have  to  stand  or  fall.  I  was  thus  thrown  upon 
my  own  resources  and  compelled  to  analyze  the 
matter  for  myself.  The  theory  of  value  that 
follows  is  the  result  of  a  practically  uninterrupted 
study  of  the  subject  for  a  period  of  over  thirty 
years. 

As  this  book  is  designed  to  assist  those  who, 
like  myself,  wish  to  understand  the  money  prob- 
lem and  to  arrive  at  a  correct  solution  of  the 
various  social  problems  that  confront  us,  it  has 
been  my  constant  endeavor  to  put  my  theories 
into  the  simplest  possible  form  and  language. 

Since  there  are  some  points  of  resemblance 
between  my  exposition  of  this  theory  and  that 
of  Bastiat,  a  French  author  who,  it  appears, 
formulated  a  service  theory  of  value  during  the 
last  century,  I  desire  to  explain,  in  justice  to 
myself,  that  my  conclusions  were  reached  quite 
independently  of  any  knowledge  of  Bastiat 's 
theories  or  writings.  Indeed,  it  is  only  recently 
that  my  attention  was  called  to  the  fact  that  this 
writer,  neglected  or  forgotten  by  political  econo- 
mists of  the  present  day,  had  formulated  a 
service  theory  somewhat  similar  to  mine,  though 
I  am  told,  far  less  complete.  Every  line  of  my 
work,  from  chap,  ii  on,  was  written  and  put  in 


viii  PREFACE 

its  present  form  before  I  learned  of  the  contribu- 
tions of  Bastiat  quoted  in  the  introductory 
chapter.  These  quotations  were  brought  to  my 
attention  and  compiled  for  me  by  a  distinguished 
writer  on  economics  and  professor  in  one  of  our 
great  universities  to  whom  I  had  submitted  the 
result  of  my  labors,  and  to  whom  I  am  greatly  in- 
debted for  criticism  and  suggestions  as  to  its 
arrangement  for  publication.  My  definite  con- 
ception of  Objective  Hindrances  as  the  measure 
of  that  service  utility  that  alone  constitutes 
Value  should  relieve  me  of  the  charge  of  ambi- 
guity that  I  learn  has  been  brought  against  the 
Service  Theory  as  presented  by  Bastiat — a 
defect,  by  the  way,  that,  judging  by  my  own 
experience  and  his  recognized  genius,  wrould, 
but  for  his  premature  death,  have  been  remedied 
by  him. 

In  my  judgment  the  theory  presented  by  me 
in  the  following  pages  explains  much  that  has 
heretofore  seemed  vague  and  inexplicable,  and 
it  throws  much  light  not  only  on  economic,  but 
on  social,  and  ethical  questions.  I  shall  show  that 
equity  demands  that  compensation  should  always 
be  in  proportion  to  the  service  rendered,  a  result 
that  is  automatically  secured  whenever  free 
competition  is  established;  but  that  human 
greed  impels  every  man  to  strive  for  a  monopoly 


PREFACE  IX 

which  would  enable  him  to  demand  and  secure 
compensation,  not  on  the  equitable  basis  of  the 
utility  of  his  service  in  supplying  a  product, 
— that  is,  in  rendering  it  available  for  use — 
but  on  the  inequitable  basis  of  the  utility  of  the 
product  itself. 

Chap,  xiii  contains  a  practical  application 
of  the  Service  Theory  to  a  discussion  of  Metallic 
and  Paper  Money.  The  perfect  adaptedness 
and  entire  sufficiency  of  this  theory  as  a  means 
of  throwing  needed  light  upon  obscure  phases 
of  this  subject  should  be  manifest  to  the  unpre- 
judiced reader.  If  this  chapter  seems  to  con- 
tain repetitions  of  matter  that  has  necessarily 
appeared  in  preceding  chapters,  it  is  not  by  over- 
sight but  by  intention,  in  order  that  the  discus- 
sion of  money,  the  unit  or  standard  of  value, 
might  be  complete  in  itself.  Incredible  as  it 
may  seem  to  those  who  are  now  resting  in 
fancied  security,  the  "money  question,"  which 
in  every  country  and  in  every  age  has  come,  and 
in  the  very  nature  of  things  must  come,  to  the 
surface  in  times  of  great  financial  stress,  can 
never  be  permanently  settled  until  a  true  con- 
ception of  the  nature  of  that  value  of  which  it 
is  the  recognized  standard  has  been  conclusively 
established. 

In  1902  I  sought  and  obtained  permission  to 


x  PREFACE 

present  my  views  on  the  question  of  value  before 
the  American  Economic  Association  at  its  annual 
meeting  in  Philadelphia,  on  December  28;  but 
the  paper  I  read  on  that  occasion  was  only  a 
brief  summary  of  the  subject  as  far  as  then 
worked  out. 

Confident  that  my  theory  will  stand  every 
test  that  can  be  applied  to  it,  I  now  submit  it 
to  the  public. 

RUFUS  FARRINGTON  SPRAGUE 

GREENVILLE,  MICH. 
Oct.  21,  1907 


CONTENTS 

3APTER  PAGE 

I.    INTRODUCTION i 

§  i.  Aim  to  Explain  Exchange  Value    .     .  3 

§  2.  Bastiat's  Service  Theory      ....  3 

II.    DEFINITIONS 15 

§  i.  Wealth,  Value 17 

§  2.  Utility,  Discomfort 18 

§  3.  Hindrance,  or  Difficulty  of  Attainment, 

Cost 20 

§  4.  Production 21 

§  5.  Gain,  Profit 22 

III.  PRODUCTION 23 

§  i.  Effective  and  Ineffective  Production    .  25 

§  2.  Illustration  of  Isolated  Production       .  26 

§  3.  Social  Production 28 

§  4.  Production  Renders  Products  Available.  30 

IV.  UTILITY  OF  THE  SERVICE  DISTINGUISHED 

FROM  UTILITY  OF  THE  PRODUCT  .     .  33 

§  i.  The  Measure  of  Utility  of  Service  in 

Cost-Impairment 35 

§  2.  Distinction  between  Utility  of  the  Serv- 
ice and  Utility  of  the  Product   ...  37 

§  3.  Intensity  of  the  Need  Unknown  in  Ex- 
change   39 

§  4.  Utility  of  the  Product  and  Exchange 

Value 43 

V.    THE    SUBJECTIVE   AND    OBJECTIVE    ELE- 
MENTS IN  PRODUCTION 47 

§  i.  Obstacles  to  Acquisition  Distinguished 

from  Cost 49 


xn  CONTENTS 


§  2.  Subjective  Energy  Working  against  the 

Objective  Resistance  of  Nature      .     .  50 
§  3.  The  Standard  for  Comparing  Objective 

Hindrances 53 

VI.    COST  A  DOUBLE  VARIABLE 57 

§  i.  Service  Measured  by  Cost  Averted  .     .  59 

§  2.  Relations  between  Cost  and  Hindrance  60 

§3.  Personal  Capacity 64 

§  4.  Profits 65 

VII.    VALUE  or  SERVICE  DIRECTLY  AFFECTED 

BY  VARIATIONS  IN  HINDRANCE     .     .  69 
§  i.  Variations  in  Personal  Costs  Have  No 

Effect  on  Utility  of  Service  ....  71 

§  2.  Illustration 73 

§  3.  Variations  in  Hindrance  Directly  Influ- 
ence Utility  of  Service 75 

§  4.  Golden  Rule 77 

VIII.    FREE  COMPETITION  AND  PERSONAL  COST  81 
§  i.  Competition    Allows    Greatest    Well- 
being   83 

§  2.  Competition  Gives  Equitable  Basis  of 

Exchange 84 

§  3.  Exchange  under  Normal  Conditions    .  86 

§  4.  Normal  Groups 88 

§  5.  Profit  under  Normal  Conditions.    .     .  91 
IX.    LAW  OF  EXCHANGE  VALUE       ....  95 
§  i.  Value  not  Based  on  Utility  of  Products.  97 
§  2.  Utility  of  the  Service  Varies  with  Varia- 
tions in  Hindrances 99 

§3.  Final  Law  of  Exchange  Value  .     .      .  101 

X.    INFLUENCE  OF  CAPITAL 105 

§  i.  Varying  Personal  Capacities      .      .     .  107. 


CONTENTS  xm 


§  2.  Monopoly  over  Improved  Instruments 

Increases  Personal  Capacity  .  .  .109 

§3.  Interest 112 

§  4.  Justification  of  Interest  as  Due  to  Bene- 
fits Conferred 114 

§5.  Capital  Reduces  Hindrance.     .     .     .  116 

XI.    RENT 123 

§  i.  Water  Obtained  at  Different  Difficul- 
ties of  Attainment 125 

§  2.  Time  Element 126 

§  3.  Land  Tax  to  Equalize  Opportunity — 

Henry  George 128 

§  4.  Case  of  a  Feudal  Lord 130 

§  5.  Private  Monopoly  of  Water  Supply     .  132 
§  6.  Effect    of    Improvements    to    Reduce 

Rent 135 

XII.    MONEY 139 

§  i.  Need  of  a  Unit  to  Measure  Hindrances  141 

§2.  A  Common  Denominator  of  Hindrances  143 
§3.  The    Particular    Kind   of   Hindrance 

Chosen  as  a  Unit  Immaterial    .     .     .  145 

§  4.  Utility  of  Money 147 

§  5.  Functions  of  Money  as  a  Unit  of  Diffi- 
culty of  Attainment 149 

§  6.  The  Monetary  Unit,  Normal  Cost,  and 

Free  Competition 152 

XIII.    METALLIC  AND  PAPER  MONEY       .     .     .  159 

§  i.  Money  a  Unit  of  Price.     Hindrance    .  161 
§  2.  Value   not   Inherent   in   the   Precious 

Metals 164 

§  3.  Why  Gold  and  Silver  Change  in  Their 

Relative  Values 165 


xiv  CONTENTS 


§  4.  Principle    Determining   the   Value   of 

Metallic  Money 167 

§  5.  Coinage,    Seigniorage,    and  Value    of 

Current  Coins 169 

§6.  Bimetallism 171 

§7.  Paper  Promises  to  Pay 173 

§8.  Depreciation  of  Paper  Money  .     .     .  175 


CHAPTER  I 
INTRODUCTION 

§  i.  It  should  be  clearly  understood  at  the 
beginning  that  the  purpose  of  this  study  is  to 
ascertain  the  true  principles  regulating  exchange 
value,  as  they  work  in  the  markets  of  today. 
However  differently  the  case  may  here  be  pre- 
sented from  that  found  in  modern  treatises,  the 
object  aimed  at  is  not  the  less  an  explanation  of 
exchange  value. 

Since  the  value  of  the  service  is  fully  insisted 
upon  in  the  following  exposition,  it  seems  best 
to  present  herewith  Bastiat's  service  theory,  in  a 
brief  but  careful  way,  in  order  that  the  differences 
and  resemblances  may  be  noted  by  the  reader. 
My  own  analysis,  however,  which  is  presented 
in  these  pages,  was  fully  worked  out,  it  is  needless 
to  say,  without  any  knowledge  of  Bastiat's 
treatment. 

§  2.  Bastiat's  service  theory  was  propounded 
in  his  Harmonies  Economiques,  as  the  pivotal 
part  of  his  whole  conception  of  the  science  of 
political  economy.1  It  will  be  best  to  give  this 
theory  in  his  own  words: 

1  The  quotations  have  been  taken  from  Stirling's  translation: 
Harmonies  o)  Political  Economy,  by  Frederic  Bastiat,  translated 

3 


TRUE  NATURE  OF  VALUE 


Let  us  analyze  the  co-operation  of  nature  of  which 
I  have  spoken.  Nature  places  two  things  at  our  disposal 
— materials  and  forces. 

Most  of  the  material  objects  which  contribute  to  the 
satisfaction  of  our  wants  and  desires,  are  brought  into 
the  state  of  utility  which  renders  them  fit  for  our  use 
only  by  the  intervention  of  labour,  by  the  application  of 
the  human  faculties.  But  the  elements,  the  atoms,  if 
you  will,  of  which  these  objects  are  composed,  are  the 
gifts,  I  will  add,  the  gratuitous  gifts,  of  nature 

It  is  very  evident,  that  if  man  in  an  isolated  state  must, 
so  to  speak,  purchase  the  greater  part  of  his  satisfactions 
by  an  exertion,  by  an  effort,  it  is  rigorously  exact  to  say 
that  prior  to  the  intervention  of  any  such  exertion,  any 
such  effort,  the  materials  which  he  finds  at  his  disposal 
are  the  gratuitous  gifts  of  nature 

I  add  now,  and  by  anticipation,  that  things  begin  to 
possess  value  only  when  it  is  given  to  them  by  labour.  I 
intend  to  demonstrate  afterwards  that  everything  which 
is  gratuitous  for  man  in  an  isolated  state  is  gratuitous 
for  man  in  his  social  condition,  and  that  the  gratuitous 
gifts  of  nature,  whatever  be  their  UTILITY,  have  no  value. 
I  say  that  a  man  who  receives  a  benefit  from  nature 
directly  and  without  any  effort  on  his  part,  cannot  be 
considered  as  rendering  himself  an  onerous  service,  and, 
consequently,  that  he  cannot  render  to  another  any 
service  with  reference  to  things  which  are  common  to  all. 

from  the  French,  with  a  notice  of  the  life  and  writings  of  the 
author,  by  Patrick  James  Stirling,  London,  John  Murray,  1860, 
8vo,  pp.  xl  +  298.  The  sixth  volume  of  (Euvres  completes  de 
Frederic  Bastiat,  Guillaumin  et  Cie,  Paris,  1870,  contains  the 
Harmonies  unabridged.  The  (Euvres  choisies,  i2mo,  edited  by 
Fe"lix  Alcan,  omits  the  whole  discussion  of  value,  and  is  of  little  use. 


INTRODUCTION 


Now,  where  there  are  no  services  rendered  and  received, 
there  is  no  value. 

All  that  I  have  said  of  materials  is  equally  applicable 

to  the  forces  which  nature  places  at  our  disposal 

But  these  natural  forces,  in  themselves,  and  apart  from 
all  intellectual  or  bodily  exertion,  are  gratuitous  gifts  of 
Providence,  and  in  this  respect  they  remain  destitute  of 
value  through  all  the  complications  of  human  trans- 
actions  

The  irresistible  tendency  of  the  human  mind,  stimu- 
lated by  self-interest,  and  assisted  by  a  series  of  discov- 
eries, is  to  substitute  natural  and  gratuitous  co-operation 

for  human  and  onerous  concurrence What  is  the 

result  of  it  ?  This,  that  in  every  product  the  gratui- 
tous element  tends  to  take  the  place  of  the  onerous;  that 
utility,  being  the  result  of  two  collaborations,  of  which  one 
is  remunerated  and  the  other  is  not,  Value,  which  has 
relation  only  to  the  first  of  these  united  forces,  is  dimin- 
ished, and  makes  room  for  a  utility  which  is  identically 
the  same,  and  this  in  proportion  as  we  succeed  in  con- 
straining nature  to  a  more  efficacious  co-operation.  So 
that  we  may  say  that  mankind  has  as  many  more  satis- 
factions, as  much  more  wealth,  as  they  have  less  value. 
Now  the  majority  of  authors  having  employed  these 
three  terms,  utility,  wealth,  value,  as  synonyms,  the 
result  has  been  a  theory  which  is  not  only  not  true,  but 
the  reverse  of  true 2 

Thus,  the  definition  of  the  word  Value,  in  order  to  be 
exact,  must  have  reference  not  only  to  human  efforts,  but 
likewise  to  those  efforts  which  are  exchanged  or  exchange- 
able. Exchange  does  more  than  exhibit  and  measure 

2  Stirling's  translation,  pp.  61-63. 


TRUE  NATURE  OF  VALUE 


values — it  gives  them  existence.  I  do  not  mean  to  say 
that  it  gives  existence  to  the  acts  and  the  things  which  are 
exchanged,  but  it  imparts  to  their  existence  the  notion  of 
value. 

Now,  when  two  men  transfer  to  each  other  their  pres- 
ent efforts,  or  make  over  mutually  the  results  of  their 
anterior  efforts,  they  serve  each  other;  they  render  each 
other  reciprocal  service. 

I  say  then,  VALUE  Is  THE  RELATION  OF  Two  SERV- 
ICES EXCHANGED.  3 

The  materials  and  forces  given  by  God  to  man  gra- 
tuitously, at  the  beginning,  have  continued  gratuitous, 
and  are  and  must  continue  to  be  so  through  all  our  trans- 
actions; for  in  the  estimates  and  appreciations  to  which 
exchange  gives  rise,  the  equivalents  are  human  services, 
not  the  gifts  of  God.4 

As  Mr.  Cairnes5  has  shown,  Bastiat  added 
nothing  new  in  asserting  the  gratuitousness  of 
the  gifts  of  nature;  but  he  failed  to  understand 
that  even  a  gratuitous  gift  of  nature  might  be 
limited  in  supply  and  thus  acquire  value;  he 
failed  to  see  that  a  gratuitous  gift  might  not  be 
in  such  abundance  as  to  be  common  to  all. 
Hence,  he  was  in  error  in  insisting  that  only 
"that  portion  of  utility  which  is  due  to  human 
labour  becomes  the  object  of  exchange."  This 
theory  would  not  explain  why  a  diamond  picked 
up  on  the  seashore  might  bear  a  high  price. 

3  Stirling's  translation,  pp.  107,  108.  4  Ibid.,  p.  221. 

5  Essays,  IX,  pp.  327-37. 


INTRODUCTION 


With  Bastiat,  however,  value  depends  upon 
the  service  rendered,  and  varies  with  the  magni- 
tude of  the  service;  and  all  exchange  is  an 
"exchange  of  services."  Hitherto,  Bastiat  has 
excluded  gratuitous  gifts  of  nature  from  having 
any  influence  on  value;  but  by  his  use  of  the 
word  "service"  he  introduces  under  it  all  the 
omitted  elements  of  value  other  than  human 
effort.  The  ambiguity,  or  equivocal  meaning 
of  "service,"  has  thus  been  pointed  out  by 
Cairnes  as  covering  up  a  gross  fallacy.  But 
what  Bastiat  has  to  say  on  this  point  is  contained 
in  the  following  passages : 

To  make  an  effort  in  order  to  satisfy  another's  wants 
is  to  render  him  a  service.  If  a  service  is  stipulated  in 

return,  there  is  an  exchange  of  services If  the 

exchange  is  free,  the  two  services  exchanged  are  worth 

each  other Less  effort  implies  less  service,  and 

less  service  implies  less  value.6  .... 

I  take  a  walk  along  the  sea-beach ,  and  I  find  by  chance 
a  magnificent  diamond.  I  am  thus  put  in  possession 
of  a  great  value.  Why  ?  Am  I  about  to  confer  a  great 
benefit  on  the  human  race  ?  Have  I  devoted  myself  to  a 
long  and  laborious  work  ?  Neither  the  one  nor  the  other. 
Why,  then,  does  this  diamond  possess  so  much  value  ? 
Undoubtedly  because  the  person  to  whom  I  transfer  it 
considers  that  I  have  rendered  him  a  great  service, — all 
the  greater  that  many  rich  people  desire  it,  and  that  I 
alone  can  render  it.7 

6  Stirling's  translation,  pp.  44,  45.  ^  Ibid.,  p.  113. 


8  TRUE  NATURE  OF  VALUE 

The  reason  for  a  natural  gift  of  nature  having 
value  is  thus  the  power  of  the  object  to  satisfy  a 
widely  felt  want,  coupled  with  the  limitation  set 
by  nature  to  objects  possessing  this  capacity. 
And  yet  Bastiat  had  earlier  denied  value  to 
gratuitous  gifts  of  nature.  Again,  while  saying 
he  finds  value  wherever  an  exchange  of  services 
takes  place,  he  also  makes  the  following  ad- 
mission regarding  gratuitous  gifts  of  nature: 
Frequently  a  material  substance;  sometimes  forces  fur- 
nished gratuitously  by  nature;  always  human  services 
interchanged,  measuring  each  other,  estimating,  appre- 
ciating, "valuing  one  another,  and  exhibiting  simply  the 
result  of  that  valuation — or  VALUE.8 

In  connection  with  the  value  of  land  he  sets 
forth  his  doctrine  on  this  particular  point  more 
fully: 

[Land]  has  value,  in  fact,  because  it  can  be  no  longer 
acquired  without  giving  in  exchange  the  equivalent  for 
this  labour  [the  labour  expended  upon  it].  But  what  I 
contend  for  is,  that  this  land,  on  which  its  natural  pro- 
ductive power  had  not  originally  conferred  any  value, 
has  no  value  yet  in  this  respect.  This  natural  power, 
which  was  gratuitous  then,  is  gratuitous  now,  and  will  be 
always  gratuitous.  We  may  say,  indeed,  that  the  land 
has  value,  but  when  we  go  to  the  root  of  the  matter  we 
find,  that  what  possesses  value  is  the  human  labour  which 
has  improved  the  land,  and  the  capital  which  has  been 
expended  on  it.  9 

8  Stirling's  translation,  p.  124.  9  Ibid.,  pp.  249,  250. 


INTRODUCTION 


Yet,  in  regard  to  land  on  which  nature  has 
conferred  desirable  fertility,  he  presents  the 
case  of  a  possible  objector,  and  in  the  paragraph 
next  following  he  gives  his  answer: 

Everyone  [says  the  objector]  who  purchases  a  land 
estate  examines  its  quality,  and  pays  for  it  accordingly. 
If,  of  two  properties  which  lie  alongside  of  each  other,  the 
one  consists  of  a  rich  alluvium,  and  the  other  of  barren 
sand,  the  first  is  surely  of  more  value  than  the  second, 
although  both  may  have  absorbed  the  same  capital,  and 
to  say  truth,  the  purchaser  gives  himself  no  trouble  on 
that  score 

The  answer  to  the  objection  now  under  consideration 
is  to  be  found  in  the  theory  of  Value  explained  in  the 
fifth  chapter  of  this  work  [Harmonies].  I  there  said  that 
value  does  not  essentially  imply  labour;  still  less  is  it 
necessarily  proportionate  to  labour.  I  have  shown  that 
the  foundation  of  value  is  not  so  much  the  pains  taken 
by  the  person  who  transfers  it  as  the  pains  saved  to  the 
person  who  receives  it;  and  it  is  for  that  reason  that  I 
have  made  it  to  reside  in  something  which  embraces  these 
two  elements — in  service.  I  have  said  that  a  person  may 
render  a  great  service  with  very  little  effort,  or  that  with 
a  great  effort  one  may  render  a  very  trifling  service. 
The  sole  result  is,  that  labour  does  not  obtain  necessarily 
a  remuneration  which  is  always  in  proportion  to  its  in- 
tensity, in  the  case  either  of  a  man  in  an  isolated  condition, 
or  of  man  in  a  social  state.10 

This  exposition  is  criticized  by  Cairnes  in  that 
Bastiat  selected  the  term  "service"  expressly 

10  Ibid.,  pp.  255,  256. 


10  TRUE  NATURE  OF  VALUE 

because  its  meaning  was  equivocal;  for  the 
latter  is  shown  to  hold  that  value  depends  upon 
other  conditions  than  human  effort — such  as  the 
utility  of  the  object,  the  limitation  of  its  supply, 
or  the  superiority  of  some  agents  furnished  by 
nature  over  others.  And  here  Bastiat  falls 
away  from  any  theory  original  to  himself,  and 
accords  more  or  less  with  the  exposition  of  value 
given  by  many  other  authors.  His  purpose  >in 
desiring  to  show  that,  under  a  regime  of  freedom, 
all  exchanges  were  "services  for  services,"  was 
to  make  an  argument  in  favor  of  the  essential 
justice  of  all  that  takes  place  in  the  industrial 
world.  This,  however,  could  not  logically  be 
done  by  taking  refuge  under  an  equivocal  term, 
"service."  He  tried  to  make  the  term  connote 
not  only  a  benefit  conferred  upon  another,  but 
also  "a  moral  judgment  on  the  facts  to  which 
it  was  applied."11 

It  would  be  well  for  our  purposes  to  report  in 
further  detail  the  working  of  Bastiat's  theory 
of  service  as  a  regulator  of  value.12 

A  multitude  of  circumstances  may  augment  the  rela- 
tive importance  of  a  Service.  We  find  it  greater  or  less, 
according  as  it  is  more  or  less  useful  to  us — according  as  a 
greater  or  less  number  of  people  are  disposed  to  render  it 
to  us — according  as  it  exacts  from  them  more  or  less 

11  Cairnes,  op.  cit.,  p.  342. 

12  The  gist  of  it  is  to  be  found  in  Stirling,  pp.  106-26. 


INTRODUCTION  n 

labour,  trouble,  skill,  time,  previous  study, — and  accord- 
ing as  it  saves  more  or  less  of  these  to  ourselves.  Value 
depends  not  only  on  these  circumstances,  but  on  the  judg- 
ment we  form  of  them;  for  it  may  happen,  and  it  happens 
frequently,  that  we  esteem  a  service  very  highly  because 
we  judge  it  very  useful,  while  in  reality  it  is  hurtful.13 

If,  in  laying  down  the  general  principle,  that  Utility 
is  the  foundation  of  Value,  you  mean  that  the  Service 
has  value  because  it  is  useful  to  him  who  receives  it  and 
pays  for  it,  I  allow  the  truth  of  what  you  say.  It  is  a 
truism  implied  in  the  very  word  service. 

But  we  must  not  confound  the  utility  of  the  air  with 
the  utility  of  the  service  [which  forces  air  into  a  diving  bell]. 
They  are  two  utilities  distinct  from  each  other,  different 
in  nature,  different  in  kind,  which  bear  no  proportion  to 
one  another,  and  have  no  necessary  relation.  There  are 
circumstances  in  which,  with  very  slight  exertion,  by 
rendering  a  very  small  service,  or  saving  verv  little 
trouble,  I  may  bring  within  the  reach  of  another  an 
article  of  very  great  intrinsic  utility.1* 

Nature  has  so  constituted  me  that  I  must  die  if  I  am 
deprived  of  an  opportunity,  from  time  to  time,  of  quench- 
ing my  thirst,  and  the  well  is  a  league  from  the  village. 
For  this  reason,  I  take  the  trouble  every  morning  to  fetch 
the  water  of  which  I  have  need,  for  in  water  I  have  recog- 
nized those  useful  qualities  which  are  calculated  to  assuage 
the  suffering  called  thirst.  Want,  Effort,  Satisfaction — 
we  have  them  all  here.  I  have  found  Utility — I  have 
not  yet  found  Value. 

But,  as  my  neighbour  goes  also  to  the  fountain,  I  say 
to  him — "Save  me  the  pains  of  this  journey — render  me 

*3  Stirling,  op.  cit.,  p.  109.          n  Ibid.,  p.  in. 


12  TRUE  NATURE  OF  VALUE 

the  service  of  bringing  me  water.  During  the  time  you 
are  so  occupied,  I  shall  do  something  for  you,  I  shall  teach 
your  child  to  spell."  This  arrangement  suits  us  both. 
Here  is  an  exchange  of  two  services  and  we  are  enabled 
to  pronounce  that  one  is  worth  the  other.  The  things 
compared  here  are  two  efforts,  not  two  wants  and  two 
satisfactions;  for  by  what  common  standard  should  we 
compare  the  benefit  of  drinking-water  and  that  of  learning 
to  spell.1  s 

We  may  say  with  propriety  that  water  is  useful,  because 
it  has  the  property  of  allaying  thirst;  and  it  is  the  service 
which  has  value,  because  it  is  the  subject  of  a  convention 
previously  debated  and  discussed.  So  true  is  this,  that 
if  the  well  is  brought  nearer,  or  removed  to  a  greater 
distance,  the  Utility  of  the  water  remains  the  same,  but 
its  Value  is  diminished  or  increased.  Why  ?  Because  the 
service  is  less  or  greater.  The  value,  then,  is  in  the 
service,  seeing  that  it  is  increased  or  diminished  accord- 
ing as  the  service  is  increased  or  diminished.16 

I  give  utterance  to  no  paradox  when  I  affirm  that 
Utility  and  Value,  so  far  from  being  identical  or  even 
similar,  are  ideas  opposed  to  one  another.  Want,  Effort, 
Satisfaction :  here  we  have  man  regarded  in  an  Economic 
point  of  view.  The  relation  of  Utility  is  with  Want  and 
Satisfaction.  The  relation  of  Value  is  with  Effort. 
Utility  is  the  Good,  which  puts  an  end  to  the  want  by  the 
satisfaction.  Value  is  the  Evil,  for  it  springs  from  the 
obstacle  which  is  interposed  between  the  want  and  the 
satisfaction.  But  for  these  obstacles,  there  would  have 
been  no  Effort,  either  to  make  or  to  exchange;  Utility 
would  be  infinite,  gratuitous,  and  common,  without 

u  Sterling,  op.  cit.,  p.  112.  >6  Ibid.,  p.  113. 


INTRODUCTION  13 


condition,  and  the  notion  of  Value  would  never  have 
entered  into  the  world.  In  consequence  of  these  obsta- 
cles, Utility  is  gratuitous  only  on  condition  of  Efforts  ex- 
changed, which,  when  compared  with  each  other,  give  rise 
to  Value.  The  more  these  obstacles  give  way  before  the 
liberality  of  nature  and  the  progress  of  science,  the  more 
does  utility  approximate  to  the  state  of  being  absolutely 
common  and  gratuitous,  for  the  onerous  condition,  and, 
consequently,  the  valtte  diminish  as  the  obstacles 
diminish.1 7 

In  respect  of  scarcity,  the  point  on  which, 
according  to  Cairnes,  he  lays  himself  open  to 
criticism,  is  treated  by  Bastiat  as  follows: 

According  to  Senior,  of  all  the  circumstances  which 
determine  value,  rarity  is  the  most  decisive.  I  have  no 
objection  to  make  to  that  remark,  if  it  is  not  that  the 
form  in  which  it  is  made  presupposes  that  value  is  inherent 
in  things  themselves — a  hypothesis  the  very  appearance 
of  which  I  shall  always  combat.  At  bottom,  the  word 
rarity,  as  applied  to  the  subject  we  are  now  discussing, 
expresses  in  a  concise  manner  this  idea,  that,  caeteris 
paribus,  a  service  has  more  value  in  proportion  as  we 
have  more  difficulty  in  rendering  it  to  ourselves;  and  that, 
consequently,  a  larger  equivalent  is  exacted  from  us  when 
we  demand  it  from  another.  Rarity  is  one  of  these 
difficulties.  It  is  one  obstacle  more  to  be  surmounted. 
The  greater  it  is,  the  greater  remuneration  do  we  award 
to  those  who  surmount  it  for  us.  Rarity  gives  rise  fre- 
quently to  large  remunerations,  and  this  is  my  reason 
for  refusing  to  admit  with  the  English  Economists  that 

'•  Ibid.,  p.  139. 


14  TRUE  NATURE  OF  VALUE 

Value  is  proportional  to  Labour.     We  must  take  into 
account  the  parsimony  with  which  nature  treats  us  in 
certain  respects.     The  word  service  embraces  all  these 
ideas  and  shades  of  ideas.18 
18  Sterling,  op.  cit.,  p.  141. 


DEFINITIONS 


CHAPTER  II 
DEFINITIONS 

§  i.  Wealth  is  the  unconsumed  results  of  the 
productive  efforts  of  the  past  still  available  for 
consumption  or  employment  as  a  means  of 
adding  to  the  subsequent  well-being  of  man. 
Under  wealth  must  also  be  included  lands  of 
superior  productivity  whose  advantages  accrue 
to  an  individual  as  a  result  of  a  recognition  of 
his  property  right  therein — that  is,  lands  rela- 
tively superior  to  no-rent  lands.  Since  property 
rights  in  land,  and  the  advantages  which  desir- 
able opportunities  in  production  confer  upon  its 
possessor,  are  legally  transferable,  land  enters 
the  economic  sphere  as  having  exchange  value 
proportionate  to  the  advantages  accruing  as  a 
result  of  such  possession  and  control.  Moreover, 
there  should  be  included  under  wealth  property 
rights  in,  and  consequent  control  of,  devices  for 
adding  to  the  effectiveness  of  labor  in  produc- 
tion ;  an  illustration  of  which  would  be  a  device 
protected  by  a  patent  right. 

Exchange  value  is  the  ratio  of  exchange  be- 
tween two  or  more  articles.  It  should  be 
equitable  to  both  parties  to  the  exchange.  In 
no  case  is  it  conceivable  that  value  inheres  in  a 

17 


i8  TRUE  NATURE  OF  VALUE 

thing.  What  value  is,  is  one  thing;  what  causes 
a  commodity  to  have  exchange  value,  is  another 
thing.  The  latter  is  the  main  object  of  the  pres- 
ent investigation. 

§2.  Utility  is  the  relation  existing  between 
the  inherent  qualities  of  a  thing  and  a  human 
need  to  which  it  can  minister.  It  is  especially 
to  be  emphasized  that  utilities  should  not  be 
confounded  with  the  qualities  of  concrete  objects, 
or  with  the  objects  themselves.  In  their  rela- 
tions to  the  external  world,  human  beings  have 
needs  or  desires,  and  there  arises  from  unsatisfied 
desires  what  may  be  defined  as  discomfort,  or 
disutility. 

Utility  is  the  relation  of  a  means  to  an  end. 
It  is  not  inherent  in  a  thing.  It  is  not  constant, 
but  fleeting  and  transitory;  on  the  other  hand, 
the  constituent  properties  of  a  thing  are  not  only 
inherent  but  constant.  The  utility  or  usefulness 
of  a  thing  as  a  means  of  ministering  to  the  well- 
being  of  man  as  an  end  is  neither  inherent  nor 
constant.  On  the  contrary,  it  is  wholly  con- 
tingent and  accidental;  contingent,  not  upon 
man  alone,  but  upon  the  accident  of  a  subjective 
condition  or  need,  susceptible  of  change  for  the 
better,  to  which  it  can  minister.  In  its  last 
analysis,  utility  is  contingent  upon  a  relation  of 


DEFINITIONS  19 


usefulness  between  an  objective  thing,  on  the 
one  hand — as,  for  example,  a  glass  of  drinking- 
water — and,  on  the  other  hand,  a  subjective 
condition  of  man,  as,  for  example,  thirst.  All 
else  being  equal,  the  utility  of  a  product  increases 
or  diminishes  with  the  greater  or  less  gravity  of 
the  need  to  which  it  ministers.  Since  utility  is 
distinct  from  the  inherent  properties  of  a  product, 
it  is  incorrect  to  assert  that  utility  inheres  in  that 
product.  Although  utility  as  has  been  said,  is 
related  to  the  inherent  properties  of  a  product,  it 
is  no  less  related  to  a  man's  subjective  condition 
susceptible  of  change  for  the  better — that  is,  to 
a  need,  to  which  the  qualities  of  the  product  can 
minister.  Hereafter,  there  can  be  no  further 
need  of  insisting  that  utility  cannot  inhere  in  the 
product.  The  capacity  for  usefulness  of  a 
bucket  of  water,  it  is  true,  is  contingent  upon  its 
properties  and  qualities  being  what  they  are. 
But  capacity  for  usefulness  is  not  usefulness,  any 
more  than  capacity  to  run  is  running;  in  brief, 
it  is  clear  that  but  for  man  there  could  be  no 
utility.  Utility  can  result  only  from  the  use  of  a 
product  of  which  utility  is  predicated  as  a  means 
of  ministering  to  a  specific  human  need. 

Utility  is  the  relation  of  a  means  to  an  end. 
That  is,  it  is  the  relation  which  the  means  em- 
ployed bear  to  the  end  sought.  Regardless  of 


20  TRUE  NATURE  OF  VALUE 

the  objective  means  employed,  the  sole  purpose 
sought  for  is  augmented  well-being.  To  con- 
sider this  well-being  as  greater  or  less  is  to 
consider  it  quantitatively.  As  is  the  quantita- 
tive augmentation  of  well-being  secured  through 
the  employment,  or  use,  of  a  thing,  such  is  the 
quantitative  utility  of  that  thing.  There  is  no 
other  measure  than  augmented  well-being  of  the 
quantitative  utility  of  a  thing.  There  need  be  no 
other  measure  to  render  intelligible  to  us  con- 
cepts of  quantitative  usefulness  or  utility. 

§  3.  In  viewing  man's  relation  to  the  objective 
world  outside  of  him,  one  is  chiefly  impressed  by 
the  fact  that  his  ever-recurring  needs  can  be 
ministered  to  ordinarily  only  by  overcoming  the 
obstacles,  or  hindrances,  interposed  by  the 
existing  conditions  of  his  environment.  This 
process  can  be  accomplished  with  gain  only  on 
condition  that  his  capacity  is  such  as  to  enable 
him  to  overcome  these  obstacles  and  thus  to 
obtain  the  concrete  articles  which  serve  his  needs. 
In  the  main,  satisfactions  are  obtained  only  by 
the  process  of  overcoming  the  resistances  of 
nature.  Viewed  from  the  position  of  the  one 
wishing  to  improve  his  well-being,  hindrance  is 
objective.  Articles,  or  satisfactions,  freely  ob- 
tainable without  objective  hindrance  have  no 


DEFINITIONS  21 


exchange  value,  and  do  not  enter  into  the  eco- 
nomic sphere. 

Effort  is  the  correlative  of  objective  hindrance. 
Cost  is  the  subjective  impairment  of  well-being 
that  results  from  that  personal  effort,  which  is 
required  in  overcoming  the  objective  hindrances 
of  nature.  While  hindrance  is  objective,  cost  is 
subjective.  Cost  is  measured  by  the  discomfort 
arising  from  the  effort  involved  in  overcoming 
the  necessary  hindrance. 

§  4.  Production  involves  such  artificial 
changes  in  objective  conditions  as  results  in 
supplying  a  means  of  promoting  the  well-being 
of  man.  In  brief,  to  produce  is  to  render  hin- 
drance-bearing products  available  for  use;  that 
is,  for  consumption,  or  exchange. 

The  four  generally  recognized  factors  in 
production  are  as  follows: 

1.  Land,  or  the  gifts  of  nature,  which,  through 
the  rights  of  control  granted  by  society,  confer 
upon  the  possessor  opportunities  in  production. 

2.  Labor,  or  physical  energy,  applied  to  the 
task  of  surmounting  the  objective  hindrances 
attendant  upon  the  acquisition  of  a  commodity. 

3.  Capital,   or  instrumentalities,  whose  em- 
ployment so  adds  to  the  effectiveness  of  labor  in 
production  as  to  reduce  cost-impairment. 


22  TRUE  NATURE  OF  VALUE 

4.  Directive  intelligence,  devoted  to  finding 
the  most  favorable  opportunities  for  production, 
to  devising  the  most  effective  instruments  for 
use  as  aids  to  labor,  and  to  directing  effectively 
the  joint  operations  of  labor  and  capital. 

§  5.  Gain  is  the  excess  of  well-being  obtained 
by  the  use  or  consumption  of  a  product  over 
and  above  the  cost-impairment  attendant  upon 
producing  it.  All  economic  activity  has  for  its 
object  this  gain.  Loss  is  the  converse  of 
gain;  that  is,  when  the  happiness  sacrificed 
in  personal  cost  exceeds  that  obtained  through 
the  acquisition  and  consumption  of  the  article, 
then  loss  is  felt.  Loss  and  gain  arise  di- 
rectly from  a  situation  in  which  men  are 
occupied  in  producing  articles  which  satisfy 
their  own  wants. 

When  men  are  engaged  in  exchanging  articles 
with  each  other,  Gain  takes  a  slightly  different 
form,  which  may  be  designated  as  Profit.  In 
its  last  analysis,  Profit  arises  from  the  fact  that 
the  thing  parted  with  as  compensation  has  been 
produced,  or  otherwise  acquired,  at  less  cost  than 
would  have  attended  the  production  of  the  thing 
secured  through  the  exchange  of  services. 
This  disposes  of  the  antiquated  fallacy  which 
assumes  that  the  gain  of  one  party  to  an  exchange 
is  obtained  only  by  a  loss  to  the  other. 


PRODUCTION 


CHAPTER  III 
PRODUCTION 

§  i.  Production,  as  previously  expressed,  is 
the  result  obtained  by  an  application  of  subjec- 
tive energy  adequate  to  the  task  of  surmounting 
the  obstacles  that  hinder  artificial  changes 
which  add  to  well-being.  In  the  processes  of 
production  we  must  necessarily  make  changes 
in  objective  conditions;  for  instance,  we  must 
do  what  is  necessary  to  take  ore  out  of  the  ground 
and  fashion  it  into  a  hammer.  Such  operations 
as  these  result  in  effective  production.  It  is  to 
be  noted,  however,  that  we  set  out  to  overcome 
objective  conditions  in  order  to  produce  a 
subjective  effect  upon  ourselves.  This  sub- 
jective effect  measures  the  utility  of  the  given 
articles. 

On  the  other  hand,  it  must  be  kept  in  mind 
that  production  does  not  of  necessity  result 
from  every  application  of  subjective  energy 
designed  to  secure  that  end.  In  the  case  of 
effective  production,  as  just  described,  from  the 
gross  augmentation  of  well-being  which  we 
obtain  from  the  consumption  of  a  product  there 
must  be  subtracted  the  cost,  or  impairment  of 
well-being,  arising  from  the  application  of 

25 


26  TRUE  NATURE  OF  VALUE 

subjective  energy,  or  labor,  necessary  to  sur- 
mount the  objective  hindrances.  Production, 
however,  would  be  futile,  even  if  subjective 
energy  were  exerted,  in  case  the  impairment  of 
well-being,  or  cost,  in  the  productive  process  is 
equal  to  or  greater  than  the  increase  of  well- 
being  arising  from  the  consumption  of  the 
product.  That  is,  in  this  investigation,  it  is  to 
be  understood  that  production  carries  with  it 
some  net  augmentation  of  well-being  as  its 
result. 

§  2.  In  order  to  begin  with  elementary  con- 
ditions from  which  our  reasoning  will  start, 
it  seems  best  to  present  an  illustration.  In 
the  first  instance,  we  will  suppose  that, 
living  in  complete  isolation  from  my  fel- 
lows, I  am  wholly  dependent  upon  my  own 
individual  efforts  to  secure  the  necessaries  of 
life.  Thus,  in  order  to  secure  the  bucket  of 
water,  whose  utility  is  such  that  its  consumption 
will  avert  an  anticipated  discomfort  of  thirst 
during  the  next  twenty-four  hours,  it  is  assumed 
that  the  water  can  be  obtained  from  a  spring 
lying  one  mile  distant.  The  only  means  by 
which  I  can  secure  the  water  is  by  an  application 
of  subjective  energy  adequate  to  the  task  of  sur- 
mounting the  objective  hindrances  that  stand 


PRODUCTION 


in  the  way  of  its  acquisition.  In  short,  I  must 
produce  it  from  the  spring.  Two  estimates 
will  be  set  by  me,  one  against  the  other.  On  the 
one  hand,  the  penalty  of  fatigue  or  cost  in  walk- 
ing one  mile  to  the  spring  and  carrying  back 
the  water  will  be  compared,  on  the  other  hand, 
with  the  thirst  discomfort  arising  from  depriva- 
tion of  water  during  the  given  time.  That  is,  I  am 
brought  face  to  face  with  alternative  discomforts, 
one  of  which  is  inevitable.  As  an  intel- 
ligent being  free  to  choose  between  these  alterna- 
tives, it  is  assumed  that  I  will  balance  them  as 
accurately  as  possible,  the  one  against  the  other, 
to  the  end  that  by  choosing  the  one  which  involves 
the  least  degree  of  discomfort  the  sum  of  my  well- 
being,  considered  as  a  whole,  may  be  augmented. 
We  will  suppose  that  the  discomforts  of  thirst 
due  to  deprivation  of  the  water  for  the  next 
twenty-four  hours,  as  compared  with  the  cost 
of  obtaining  the  water  from  the  spring,  is  as 
100  to'  10.  In  brief,  the  units  of  cost-discom- 
fort attendant  upon  producing  the  water  from 
the  spring  one  mile  distant  are  represented  by  10. 
Thus  by  balancing  the  discomfort  of  thirst 
attendant  upon  deprivation  of  the  water,  which 
in  my  judgment  is  100,  against  the  discomforts  of 
fatigue  attendant  upon  producing  it  from  the 
spring  one  mile  distant,  which  I  have  decided  is 


28  TRUE  NATURE  OF  VALUE 

but  10,  it  is  evident  that  the  anticipated  gain  or 
incentive  to  production  will  equal  90. 

If,  now,  we  assume  such  changes  in  environ- 
ment as  will  result  in  placing  a  greater  and  greater 
distance  between  me  and  the  spring,  which  is 
my  most  available  source  of  supply,  we  shall 
find  that,  as  the  distance,  which  is  here  the  chief 
element  in  the  hindrance  encountered,  increases, 
cost-impairment  will  increase  proportionately, 
until,  at  last,  gain  will  vanish,  and  with  it  the 
sole  incentive  to  rational  activity,  or  productive 
effort.  Thus,  for  example,  with  a  spring  one 
mile  distant,  if  the  gain  would  be  90;  at  two  miles, 
80;  at  five  miles,  50;  at  nine  miles,  10 — we  will 
be  justified  in  concluding  it  would  vanish  com- 
pletely with  the  spring  at  ten  miles  away. 

§  3.  So  far,  in  this  illustration,  we  have  been 
concerned  with  the  conditions  of  a  man  in  an 
isolated  situation.  Now,  we  will  change  to  the 
case  of  a  man  working  as  a  member  of  society 
in  which  he  is  no  longer  compelled  to  rely  solely 
upon  his  own  unaided  efforts  as  a  means  of 
acquiring  products  that  can  be  obtained  only 
by  surmounting  the  hindrances  imposed  by 
nature.  Here  we  are  met  at  once  with  the  fact 
that  there  are  marked  variations  in  the  relative 
capacities  of  men  in  surmounting  the  obstacles 


PRODUCTION  29 


of  production.  If  I  avail  myself  of  the  services 
of  another  I  am  at  once  met  by  the  fact  that  he 
may  have  a  relatively  superior  capacity  to  pro- 
duce the  thing  desired  by  me  than  he  has  to 
produce  certain  other  things  needful  to  him. 
Therefore,  the  other  might  find  it  to  his  advan- 
tage to  produce  and  supply  me  with  the  water 
upon  condition  that  I  will  produce  and  supply 
him  with  some  article,  like  a  hat,  the  use  of 
which  will  add  to  his  well-being.  As  in  our 
direct  dealings  with  nature  there  must  be  a 
measurable  gain  as  an  incentive  to  productive 
effort,  so  in  our  dealings  with  our  fellow- men 
there  must  be  an  incentive  to  an  exchange  of 
services.  It  will  be  assumed  that  I  can  provide 
A  with  a  hat  at  a  cost  to  myself  as  compared 
with  a  bucket  of  water  of  9  for  the  hat  as  against 
10  for  the  water.  By  so  doing  I  shall  gain  one 
unit,  which  marks  the  degree  in  which  my 
capacity  to  produce  the  hat  exceeds  my  capacity 
to  produce  the  water.  On  the  other  hand, 
looking  at  the  matter  from  the  point  of  A,  whose 
capacities  are  relatively  different  from  mine 
for  the  same  purposes,  we  will  suppose  that  A 
can  produce  the  water  at  the  cost  of  8,  while 
his  relatively  inferior  capacity  in  producing 
the  hat  would  make  it  cost  him  12  to  overcome 
the  hindrances  attendant  upon  its  acquisition. 


30  TRUE  NATURE  OF  VALUE 

Although  the  hat  is  as  essential  to  my  well-being 
as  it  is  to  A,  since  one  hat  will  meet  my  needs,  it  is 
evident  that  additional  hats  will  have  no  utility 
to  me  except  as  a  means  of  making  compensation 
for  the  service  of  others  in  my  behalf,  as,  for 
example,  compensating  A  for  his  work  in 
supplying  the  water.  On  the  other  hand,  the 
utility  of  the  hat  to  A  is  supposed  to  have  the 
outside  limit  of  16,  while  the  outside  limit  of 
the  utility  of  the  water  to  me  is  100.  This 
illustration  is  based  upon  the  assumption  that 
the  objective  obstacles  that  constitute  the 
hindrance  of  both  the  water  and  the  hat  that 
exchanges  for  it  are  identical  for  both  A  and 
me,  and  that  the  variations  in  the  costs  are 
wholly  due  to  variations  in  our  respective  capa- 
cities for  the  work  in  hand. 

§  4.  Reduced  to  its  simplest  terms,  the  pro- 
duction of  a  hindrance-bearing  product  needful 
to  a  man  is  to  render  it  available  to  him  for  its 
use  or  consumption.  This  being  true,  every 
effort  that  results  in  rendering  needful  products 
more  readily  available  for  use  or  consumption, 
is  effective  productive  effort,  even  though  it  falls 
short  of  rendering  its  product  directly  and  im- 
mediately available. 

Thus  to  produce  a  bucket  of  water  from  a 


PRODUCTION  31 


spring  one  mile  distant  is  to  render  it  available 
as  a  means  of  quenching  thirst,  at  a  point  in 
space  one  mile  distant  from  its  source  of  supply. 
Since  no  change  whatever  has  been  effected  in 
the  properties  or  qualities  of  the  water,  it  is 
evident  that  the  whole  process  of  production 
has  consisted  in  producing  a  utility  of  place. 
So,  also,  to  produce  a  hat  is  to  render  it  avail- 
able for  employment  as  a  covering  for  the  head. 
The  production  of  a  hat,  involves  processes 
other  than  those  attendant  upon  transporting  it. 
Thus,  the  loose  straws  must  first  be  gathered— 
perhaps  grown — after  which  they  must  be  prop- 
erly assorted,  and  plaited  into  such  form  as  will 
adapt  them  for  employment  as  a  means  of 
adding  to  the  sum  of  human  well-being.  If, 
through  error  in  judgment,  it  is  either  too  large 
or  too  small  to  be  available  for  the  purposes  for 
which  it  was  designed,  the  effort  to  produce 
has  been  abortive.  A  condition  precedent  to 
producing  is  the  rendering  of  a  product,  needful 
to  man,  available,  or  at  least  more  readily 
available  than  before,  for  his  particular  use  or 
consumption,  as  a  means  of  promoting  his  well- 
being.  Though  productive  processes  are  widely 
different  in  their  character,  the  final  test  of 
production  is  found  in  the  fact  that,  through 
effort,  needful  products  have  been  rendered 


32  TRUE  NATURE  OF  VALUE 

available,  or  more  readily  available  than  form- 
erly, for  employment  as  a  means  of  adding  to 
the  well-being  of  man. 

Now,  upon  what  basis  will  the  hat  and  the 
water  be  exchanged  in  the  open  market  ?  Will 
it  be  upon  the  basis  of  assumed  equivalence  in 
the  anticipated  utilities  of  these  two  products 
in  actual  use;  or  will  it  be  upon  the  basis  of 
assumed  equivalence  in  the  gravities  of  the 
objective  hindrances  surmounted  in  rendering 
them  available  ?  In  other  words,  will  it  be  upon 
the  basis  of  equivalence  in  the  utilities  of  the 
products;  or  upon  the  basis  of  the  utilities  of 
the  services,  which,  by  supplying  these  products, 
render  them  available  for  use  or  consumption  ? 
The  question  affords  its  own  answer.  To  assert 
that  the  value  of  product  X  equals  the  value  of 
product  Y,  is  but  a  convenient  way  of  declaring 
that  the  utility  of  the  service,  that  renders  one 
of  them  available  for  use  or  exchange,  is  the 
exact  equivalent  of  the  service  that  renders  the 
other  article  available  for  like  purposes.  It  is, 
furthermore,  the  most  convenient  way  of  de- 
claring equivalence  in  the  gravities  of  the  objec- 
tive hindrances  that  must  be  surmounted  in 
order  to  render  these  two  products  available. 


UTILITY    OF    THE    SERVICE    DISTIN- 
GUISHED FROM  THE  UTILITY 
OF  THE  PRODUCT 


CHAPTER  IV 

UTILITY  OF  THE  SERVICE  DISTINGUISHED 
FROM  THE  UTILITY  OF  THE  PRODUCT 

§  i.  In  the  illustration  previously  given,  and 
in  all  practical  cases  of  exchange,  it  is  clear  that 
there  is  no  direct  relation  between  the  utilities 
of  the  products  exchanged  and  their  exchange 
value.  That  is,  the  relative  utilities  of  the  two 
products  do  not  give  us  the  necessary  data  for 
an  intelligent  determination  of  the  equitable  ratio 
of  exchange  between  them.  In  this  connection 
it  may  be  well  to  direct  attention  to  the  fact  that 
concepts  of  utility  and  of  disutility — of  aug- 
mented and  of  impaired  well-being — are  but 
positive  and  negative  terms  relative  to  the  same 
phenomenon,  namely,  human  well-being.  Thus 
a  unit  of  measure,  based  upon  a  clearly  conceived 
and  specific  degree  of  augmented  well-being, 
will  be  well  adapted  for  use  as  a  means  of  giving 
intelligible  expression  to  concepts  of  impaired 
well-being.  Referring  to  our  illustration,  it  is 
evident  that,  in  regard  to  my  need  for  water  and 
the  means  of  ministering  to  it,  I  find  my  most 
specific,  clearly  defined,  and  consequently  avail- 
able measure  of  the  water's  utility,  not  in  a 
consideration  of  the  increased  well-being  that 

35 


36  TRUE  NATURE  OF  VALUE 

would  result  from  its  use — that  is,  not  from  the 
utility  of  the  commodity — but  in  consideration 
of  the  specific  impairment  of  well-being  that 
deprivation  of  it  will  inflict.  Obviously,  the 
utility  of  a  product  is  more  vague,  and  less 
clearly  defined,  than  the  impairment  of  well- 
being  that  would  result  from  a  deprivation  of 
this  product.  That  is,  having  estimated  the 
greater  or  less  utility  of  the  water  by  estimating 
the  specific  thirst-discomfort,  which  deprivation 
of  it  will  inflict,  as  100,  the  ruling  consideration 
is  to  be  found  in  a  greater  or  less  impairment  of 
well-being  that  would  result  from  my  surmount- 
ing the  objective-hindrances  attendant  upon 
producing  it  from  the  spring. 

In  turning  to  the  case  where  I  am  not  living 
in  isolation,  but  in  social  relations  with  others* 
so  that  exchange  of  services  is  possible,  the 
same  principles  will  be  found  true.  We  will 
refer  to  the  illustration  in  which  the  water  is 
supplied  to  me  by  A.  It  is  evident  that  he  will 
not  supply  me  with  this  bucket  of  water  as  a 
free  gift.  On  the  contrary,  his  service  as  a 
means  of  averting  the  cost-discomfort  attendant 
upon  its  production  by  me,  will  be  available  only 
in  consideration  of  the  fact  that  I  am  prepared 
to  render  him  an  acceptable  compensatory 
service.  It  is  evident  that  A's  service  as'such 


UTILITY  OF   SERVICE  AND   PRODUCT      37 

will  have  a  utility  for  me  based  solely  upon  what 
A  is  to  do  for  me,  separate  and  apart  from  the 
utility  which  water — the  product  of  his  doing- 
is  to  me. 

Now,  upon  what  basis  can  I,  as  an  intelligent 
being,  consent  to  make  compensation  for  this 
bucket  of  water  secured  through  the  instrumen- 
tality of  A's  service  ?  Can  I  base  it  upon  the 
efficacy  of  the  water  as  a  means  of  averting  the 
specific  discomfort  of  thirst,  which  has  been 
estimated  at  100  ?  Or  shall  I  insist  upon  basing 
it  solely  upon  the  efficacy  of  A's  service  in  supply- 
ing it,  which  under  the  conditions  assumed  can- 
not exceed  10?  The  answer  to  this  inquiry  is 
too  obvious  to  admit  of  discussion,  and  further- 
more it  clearly  discloses  the  absolute  necessity 
of  sharply  differentiating  between  the  utility 
of  a  service  that  supplies  a  product  and  the 
utility  of  the  product  which  such  service  supplies. 
Moreover,  in  the  conduct  of  the  practical  affairs 
of  every-day  life  only  the  most  obtuse  fail  to  act 
upon  this  distinction. 

§  2.  The  necessity  of  the  distinction  between 
the  utility  of  the  service  and  the  utility  of  the 
product  which  such  service  supplies  will  appear 
more  clearly  when  we  study  the  conditions  of 
the  exchange  of  the  hat  for  the  water  between 


38  TRUE  NATURE  OF  VALUE 

A  and  me.  Recognizing  A's  right  to  demand  a 
proper  compensation  for  his  service  in  my 
behalf,  it  is  understood  that  he  will  demand  of 
me  a  return  service  that  involves  my  producing 
and  supplying  him  with  the  hat.  Now,  under 
what  conditions  can  I  with  advantage  to  myself 
make  the  compensation  demanded  ?  That  is, 
wherein  lies  my  incentive  to  this  exchange  ? 
To  determine  this,  must  I  first  ascertain  the 
degree  of  the  utility  of  the  hat  to  me,  to  the  end 
that  such  utility  may  be  balanced  against  the 
utility  of  the  water?  And  does  it  follow  as  a 
matter  of  course,  that,  if  I  find  that  the  quanti- 
tative utility  of  the  water  is  materially  in  excess 
of  that  of  the  hat,  I  shall,  regardless  of  the  cost- 
impairment  attendant  upon  producing  the  latter, 
certainly  gain  by  exchanging  it  for  the  water? 
That  is,  would  I  gain  by  the  exchange,  if  it  cost 
me  more  to  produce  the  hat  than  it  would  cost 
me  to  produce  the  water  ?  Evidently  not.  On 
the  contrary,  as  a  basis  for  intelligent  choice 
between  the  alternative  courses  open  to  me,  I 
must  now  determine,  not  the  utility  of  the  hat, 
but  the  cost- impairment  attendant  upon  its 
production,  to  the  end  that  this  impairment  of 
well-being  may  be  balanced  against  the  cost- 
impairment  which  A's  service  in  supplying  me 
with  the  water  averts,  What  is  more,  unless  I 


UTILITY  OF   SERVICE   AND   PRODUCT      39 

find  the  cost-impairment  attendant  upon  my 
production  of  the  water  measurably  exceeds  that 
attendant  upon  my  production  of  the  hat,  there 
can  be  no  rational  incentive  to  the  exchange. 
Indeed,  if  I  find  that  the  production  of  the  hat 
demanded  by  A  as  compensation  for  his  service 
in  supplying  the  water,  costs  me  more  than  the 
10  units  attendant  upon  my  production  of  the 
water,  it  is  evident  that  loss,  and  not  gain,  must 
result  from  the  exchange.  Not  only  will  there 
be  no  incentive  to  make  the  exchange,  but, 
because  of  the  loss  that  would  follow,  there 
would  be  an  incentive  to  refrain  from  mak- 
ing it. 

§  3.  A  moment's  reflection  renders  it  apparent 
that  under  normal  conditions  I  can  know  little 
or  nothing  of  the  intensity  of  the  specific  need 
upon  which  in  its  last  analysis  the  greater  or  less 
utility  of  the  hat  for  A  depends;  while  he,  in 
turn,  will  be  equally  uninformed  as  to  the  inten- 
sity of  the  specific  need  that  limits  and  deter- 
mines the  greater  or  less  utility  of  the  water  as  a 
means  of  ministering  to  my  thirst.  Not  only 
is  this  true,  but  each  will  instinctively  resent  as 
unfair,  and  wholly  without  warrant  in  equity, 
every  attempt  on  the  part  of  the  other  to  base 
his  demand  for  compensation  for  his  service, 


40  TRUE  NATURE  OF  VALUE 

in  supplying  a  thing,  upon  the  gravity  of  the 
other's  need  for  that  thing. 

To  make  the  matter  properly  clear,  it  may  be 
necessary  to  analyze  more  minutely  the  elements 
of  this  transaction.  In  the  illustration,  the 
outside  limit  of  the  water's  utility  to  me  was  100; 
while  the  disutility  or  cost-impairment  in  bring- 
ing it  from  the  spring  one  mile  distant  is  10. 
Also  it  should  be  borne  in  mind  that  I  have  a 
need  for  only  one  hat.  On  the  side  of  A,  the 
situation  is  quite  different.  We  will  suppose 
that  the  objective-hindrances  in  obtaining  either 
the  water  or  the  hat  are  to  all  intents  and  pur- 
poses identical  for  him  and  for  me;  but  his 
capacity  to  surmount  the  difficulties  of  obtaining 
the  water  is,  relatively  speaking,  so  superior  to 
his  capacity  to  produce  the  hat  as  to  enable  him 
to  produce  the  water  at  8;  while  it  costs  him  12 
to  produce  the  hat.  On  the  other  hand,  my 
capacity  to  produce  the  hat  is  relatively  so  much 
superior  to  my  capacity  to  produce  the  water 
that  it  costs  me  only  9  to  produce  the  hat,  while 
it  costs  me  10  to  produce  the  water.  We  also  find 
here  a  complete  reversal  of  the  relative  utilities 
of  the  products  to  A  and  to  me.  While  my 
subjective  conditions  are  such  as  to  fix  the  out- 
side limit  of  the  utility  of  one  bucket  of  water  at 
100,  its  greatest  anticipated  utility  for  A  is  found 


UTILITY  OF   SERVICE  AND   PRODUCT      41 

in  its  acceptance  by  me  as  compensation  for  my 
service  in  supplying  him  with  the  hat,  to  produce 
which  would  have  cost  him  12.  On  the  other 
hand,  while  the  highest  utility  to  him  of  the  hat 
is  1 6,  its  highest  utility  to  me,  based  upon  the 
greatest  recognized  need  for  which  it  will  now 
be  necessary  to  provide,  is  found  in  the  fact  that 
my  service  in  supplying  it  will  be  accepted  by  him 
as  compensation  for  his  service  in  supplying  me 
with  the  bucket  of  water  which  would  cost  me  10. 

It  may  be  well  to  emphasize  again  the  fact 
that  the  distance  to  be  traveled  and  the  weight 
of  the  burden  to  be  borne — which  constitutes 
the  objective  hindrances  of  water — are  identical 
for  A  and  for  me.  So,  too,  the  objective  hin- 
drances arising  from  collecting  material,  weaving 
or  manufacturing  a  hat  are  supposed  to  be 
identical  for  both.  On  this  supposition,  that 
the  objective  difficulties  are  the  same  to  both 
of  us,  it  is  a  self-evident  proposition  that  varia- 
tions in  the  cost-impairment  to  A  and  to  me  of 
obtaining  the  water,  or  in  the  cost-impairment 
to  A  and  to  me  of  obtaining  the  hat,  must  be  due 
to  equally  marked  variations  in  our  respective 
capacities  for  the  work  in  hand. 

Under  these  circumstances,  we  have  the  con- 
ditions favorable  to  an  economic  exchange  be- 
tween the  producer  of  the  water  and  the  producer 


42  TRUE  NATURE  OF  VALUE 

of  the  hat ;  that  is,  the  exchange  will  be  profitable 
to  both  parties  to  the  transaction.  In  this 
instance,  as,  for  that  matter,  in  every  other,  profit 
arises  not  from  the  fact  that  the  product  required 
by  each  has  a  utility  in  excess  of  the  utility  of 
the  product  parted  with,  but  simply  and  solely 
from  the  fact  that  each  can  produce  and  supply 
the  other  with  the  thing  parted  with  at  a  cost- 
impairment  less  than  that  at  which  he  can  pro- 
duce and  supply  himself  with  the  thing  acquired 
through  the  exchange.  Thus  each  has  secured 
the  product  which  is  the  immediate  object  of  his 
desire  at  less  of  cost-impairment  than  would 
have  attended  its  acquisition  had  he  surmounted 
the  hindrances  incident  to  its  production  by  his 
own  direct  efforts.  Indeed,  it  should  be  self- 
evident  that  unless  he  can  do  this,  there  can  be 
for  him  no  profit;  and,  without  the  profit,  there 
can  be  no  rational  incentive  to  exchange.  In 
short,  profit  equals  the  diminution  of  cost- 
impairment  that  results  from  exchange  of  service 
for  service  in  supplying  products.  In  other 
words,  as  is  the  diminution  of  cost-impairment 
attendant  upon  producing  the  thing  parted  with, 
in  comparison  with  the  greater  cost-impairment 
attendant  upon  producing  the  thing  acquired, 
such  is  the  profit  which  becomes  an  incentive 
to  an  exchange. 


UTILITY  OF   SERVICE  AND   PRODUCT     43 

It  should  be  observed,  also,  that  the  profit 
which  by  right  falls  to  the  share  of  each  party 
to  an  exchange  is  in  no  way  affected  or  contingent 
upon  the  profit  falling  to  the  share  of  the  other; 
that  is,  one  party  does  not  obtain  a  profit  at  the 
expense  of  the  other.  I  secure  a  profit  of  i, 
not  at  the  expense  of  A,  but  simply  because  my 
capacity  to  produce  the  hat  supplied  to  him  is 
relatively  superior  to  my  capacity  to  produce 
the  water.  This  arises  from  the  fact  that  the 
hat  is  produced  by  me  at  a  cost  of  9,  while  the 
water  is  produced  by  me  only  at  a  cost  of  10. 
On  the  other  hand,  A  secures  by  the  exchange  a 
profit  of  4,  not  at  my  expense,  but  solely  because 
he  can  produce  and  supply  the  water  at  a  cost 
of  8,  while  to  produce  the  hat  would  have  cost 
him  12. 

§  4.  If,  as  a  result  of  the  above  analysis,  I 
supply  A  with  a  hat  in  exchange  for  his  service 
in  supplying  me  with  water,  the  result  is  popularly 
expressed  by  saying,  "the  value  of  the  water  is 
the  hat;"  or,  conversely,  "the  value  of  the  hat  is 
the  water."  We  have  here  a  statement  of 
exact  equivalence  in  what  is  termed  the  value 
of  these  two  products,  and  one  which  will  meet 
with  the  instant  and  unqualified  approval  of  all 
who  are  made  familiar  with  the  conditions 


44  TRUE  NATURE  OF  VALUE 

and  terms  of  the  transaction.  We  are,  there- 
fore, obliged  to  conclude  that  it  is  based  upon 
some  easily  recognized  and  well-established 
data. 

At  this  point,  however,  warning  must  again 
be  given  that  this  equivalence  in  value  is  not 
based  upon  the  equivalence  of  the  respective 
utilities  of  the  two  articles.  It  is  to  be  borne  in 
mind  that  value,  of  course,  is  inseparably  asso- 
ciated in  thought  with  utility.1  Since,  then, 
utility  is  habitually  associated  with  products, 
and  since  "value  cannot  be  disassociated  from 
utility,"  what  wonder  is  it  that  some  writers 
instinctively  turn  to  the  recognized  utility  of 
the  products  exchanged  as  the  true  and  only 
cause  of  this  proclaimed  equivalence  in  their 
respective  values  ? 

But  we  do  not  find  any  agreement  or 
coincidence  of  quantitative  utility  in  the  two 
products  of  our  illustration — or,  for  that 

1  "  Instead  of  finding  that  utility  is  something  necessary  indeed 
to  the  existence  of  value,  but  not  included  in  its  proper  meaning — 
something  which  we  must  drop  out  of  mind  as  we  become  very 
scientific — we  shall  find  that  utility  and  value  are  inseparably 
bound  in  thought  and  that  the  attempt  to  disassociate  them  betrays 
a  failure  on  the  part  of  the  scientist  to  follow  with  his  analysis  the 
subtle  mental  processes  that  have  determined  the  popular  mode  of 
expression  and  given  the  public  a  truer  notion  of  value  than 
science  has  yet  attained." — J.  B.  Clark,  Philosophy  of  Wealth, 
P-  75- 


UTILITY  OF   SERVICE  AND   PRODUCT     45 

matter,  any  such  approach  thereto,  as  to 
warrant  an  assumption  of  equivalence  in  their 
values  based  upon  an  equivalence  in  their 
utilities.  Thus  while  the  water's  utility  to  me, 
as  a  means  of  quenching  thirst,  is  100,  the  utility 
of  the  hat  for  me  is  limited  to  its  employment  as 
a  means  of  making  compensation  for  a  service 
that  relieves  me  of  a  cost-impairment  of  10. 
In  the  case  of  A,  the  conditions  are  reversed; 
while  the  utility  of  the  hat  to  him,  as  an  article 
of  apparel,  is  16 — or  three-fifths  greater,  con- 
sidered as  a  factor  in  his  well-being,  than  the 
need  upon  which  its  utility  for  me  is  based, 
the  absence  of  a  need  for  the  water,  other  than 
as  a  means  of  compensating  me  for  my  service 
in  supplying  him  with  the  hat  (thereby  averting 
a  cost-impairment  of  12),  limits  its  utility  for 
him  to  its  compensatory  power,  or  utility  in 
exchange. 

Whatever  may  be  the  qualities  of  the  product, 
or  the  capacity  of  the  product  to  satisfy  human 
need,  utility  is  not  manifested  except  by  the  ac- 
tual employment  of  these  qualities  to  satisfy  some 
want.  In  attempting  to  measure  the  utility  of  a 
product,  it  must  be  remembered  that  the  utility 
will  increase  or  diminish  with  the  greater  or  less 
need  to  which  it  ministers.  That  is,  the  utility  of 
the  product  increases  or  diminishes  with  the 


46  TRUE  NATURE  OF  VALUE 

greater  or  less  augmentation  of  well-being  that 
results  from  the  use  of  the  product.  There  is  no 
other  conceivable  measure  than  this  of  a  prod- 
uct's utility. 


THE   SUBJECTIVE  AND    OBJECTIVE 
ELEMENTS  IN  PRODUCTION 


CHAPTER  V 

THE  SUBJECTIVE  AND  OBJECTIVE  ELEMENTS 
IN  PRODUCTION 

§  i.  Unable  to  find  in  the  assumed  utility 
of  the  products  exchanged  any  warrant  for  that 
declared  equivalence  in  their  exchange  value, 
which  is  the  acknowledged  basis  of  every  equit- 
able exchange,  we  next  turn  to  the  consideration 
of  the  objective  hindrances  to  be  overcome  in 
producing  them;  and  also  to  a  consideration  of 
the  cost  involved  in  such  operations.  These 
objective  hindrances  to  be  overcome,  and  the 
personal  costs  necessarily  involved  in  surmount- 
ing them,  are  of  first  importance.  With  regard 
to  cost,  the  purely  personal  factor — which  is  an 
inevitable  consequence  attendant  upon  the  appli- 
cation of  subjective  energy,  or  labor,  designed 
to  surmount  the  obstacles  that  stand  in  the  way 
of  our  acquisition  of  useful  products — it  is  to  be 
observed  that  it  varies  no  less  certainly,  if  indeed 
less  radically,  because  of  variations  in  the  sub- 
jective capacity  of  the  individual,  than  because  of 
variations  in  the  character  and  gravity  of  the  ob- 
jective hindrance  that  renders  labor  necessary. 
It  will  be  our  purpose,  however,  to  reserve  the 
discussion  of  variations  in  personal  capacity  to 

49 


SO  TRUE  NATURE  OF  VALUE 

the  next  chapter;  and,  for  the  present,  we  shall 
confine  our  attention  to  a  consideration  of  objec- 
tive hindrance  as  a  factor  in  exchange  value. 

§  2.  It  is  hardly  necessary  to  point  out  that 
the  obstacles  and  hindrances  encountered  by 
man  in  his  efforts  to  effect  changes  in  objective 
conditions  which  will  add  to  the  sum  of  his  subse- 
quent well-being  are  to  him  always  objective. 
In  nature,  the  potentialities  of  hindrance  are 
found  in  the  laws,  forces,  and  tendencies  that, 
working  ever  in  a  given  direction,  operate  to 
resist  artificial  changes  in  an  existing  order  of 
things — as  distinguished  from  the  changes  which, 
without  human  intervention,  take  place  in  the 
natural  order  of  things.  So,  likewise,  in  con- 
sidering the  hindrances  encountered  in  our 
efforts  to  minister  to  our  economic  needs  through 
an  exchange,  we  find  the  potentialities  of  eco- 
nomic hindrance  in  every  surmountable  law, 
force,  tendency,  established  rule,  or  custom  that, 
either  in  nature  or  in  society,  operates  to  hinder 
changes  in  objective  conditions,  or  in  man's 
relation  to  them,  which,  if  effected,  would  add 
to  the  sum  of  his  well-being. 

Clearly,  there  is  but  one  means  by  which 
nature's  hindrance  can  be  surmounted,  and 
that  lies  in  an  application  of  subjective  energy 


SUBJECTIVE  AND   OBJECTIVE   ELEMENTS    51 

adequate  in  quantity — intensity  multiplied  by 
duration — and  in  efficiency,  that  is,  in  intelligent 
guidance  or  direction  in  surmounting  the  forces 
that  operate  to  resist  the  artificial  changes 
involved  in  production.  Only  in  this  manner 
can  we  acquire  the  product — such,  for  example, 
as  the  bucket  of  water — which,  as  the  immediate 
and  direct  result  of  an  application  of  productive 
energy  designed  to  effect  changes  in  objective 
conditions,  affords  indisputable  evidence  of 
production:  that  is,  production,  considered 
purely  as  an  objective  phenomenon,  and  without 
reference  to  its  bearing  upon  human  well-being, 
which,  as  has  been  seen,  is  its  final  test. 

Owing  to  our  finite  limitations,  every  expendi- 
ture of  subjective  energy — mental  or  physical, 
it  matters  not — the  purpose  and  aim  of  which 
is  to  secure  artificial  changes  in  an  existing  order 
of  things  for  our  subsequent  well-being,  carries 
with  it  a  penalty  of  fatigue,  exhaustion,  or  other 
form  of  cost- impairment  proportionate  to  the 
relation  that  exists  at  the  time  between  the 
objective  hindrance  to  be  surmounted,  and  our 
individual  capacity  to  surmount  it.  Conse- 
quently, as  a  necessary  attendant  upon  every 
successful  effort  to  secure  artificial  changes  in 
the  conditions  of  our  environment  that  will  add 
to  the  sum  of  our  subsequent  well-being,  there 


52  TRUE  NATURE  OF  VALUE 

follows  a  twofold  result,  one  positive  and  the 
other  negative — that  is,  one  making  for,  and 
the  other  against,  augmented  well-being.  First, 
there  will  be  the  inevitable  impairment  of  well- 
being  that,  as  cost,  necessarily  results  as  a  con- 
sequence of  every  engagement  between  the 
objective  forces  that  hinder,  and  the  subjective 
forces  that  surmount,  them.  Second,  there 
should  be  the  sought-for  artificial  change  in 
objective  conditions,  or  in  our  relations  to  them, 
which,  in  so  far  as  they  make  for  or  contribute 
to  the  sum  of  our  well-being,  but  no  farther, 
constitute  what  may  be  termed  economic  prod- 
uct when  considered  as  a  gross  result. 

It  must  be  apparent  that  production,  even  as  a 
gross  result,  does  not  follow  as  a  necessary 
consequence  from  every  application  of  subjective 
energy,  which,  being  designed  to  surmount 
hindrance,  imposes  cost.  Indeed,  production 
of  this  sort  is  in  no  degree  less  contingent  upon 
the  quality — effectiveness  due  to  intelligent 
guidance  or  direction — than  upon  the  quantity 
of  energy  applied.  Lacking  in  either  quantity 
or  quality,  the  effort  is  abortive;  and  we  have 
only  cost  as  the  result.  Inasmuch  as  quantity 
of  energy  is  more  easily  discerned  than  quality 
of  energy — and  consequently  is  more  easily  and 
definitely  measured — the  former  is  usually  re- 


SUBJECTIVE  AND   OBJECTIVE  ELEMENTS     53 

garded  as  having  a  more  direct  bearing  than  the 
latter  upon  cost.  As  a  matter  of  fact,  the  latter 
is,  and  has  been,  a  factor  of  the  greatest  impor- 
tance in  so  adding  to  the  effectiveness  of  labor 
as  to  reduce  cost. 

Furthermore,  when  we  come  to  consider 
production  not  as  purely  objective — that  is,  the 
mere  result  of  artificial  changes  in  objective 
conditions — but  with  reference  to  the  subjective 
effect  which  these  changes  are  designedly  adapted 
to  secure,  it  is  evident  that  we  must  first  deduct 
from  the  gross  augmentation  of  well-being 
arising  from  the  consumption  of  a  product,  the 
impairment  of  well-being  which,  as  cost,  is  the 
direct  result  of  every  application  of  subjective 
energy  or  labor  designed  to  surmount  economic 
hindrance.  That  is,  if  the  impairment  of  well- 
being,  which  is  due  to  cost,  equals  the  increase 
of  well-being  due  to  the  use  or  consumption  of 
the  product,  there  is  no  production  in  the  true 
sense  of  the  term;  because  there  is  no  net  aug- 
mentation of  well-being  as  the  result  of  the 
operation. 

§  3.  It  should  be  observed  that,  in  our  main 
thesis,  wre  are  engaged  in  an  effort  to  ascertain 
the  true  basis  for  the  unqualified  declaration  of 
equivalence  in  the  values  of  the  two  products 


54  TRUE  NATURE  OF  VALUE 

exchanged  in  our  previous  illustration,  the  water 
and  the  hat.  This  equivalence  in  value,  I  have 
tried  to  make  clear,  is  wholly  due  to  equivalence 
in  the  utilities  of  the  two  services  rendered. 
And  these  services  have  equivalent  utilities  only 
when,  and  only  because,  they  surmount  equiva- 
lent hindrances. 

When  we  turn  to  a  consideration  of  the  ob- 
stacles to  the  acquisition  of  the  water  and  the  hat, 
we  are  confronted  by  the  absence  of  a  unit  or  a 
standard,  other  than  the  purely  accidental  and 
personal  relation  of  individual  cost  for  measur- 
ing and  comparing  them.  Let  us  suppose  that 
the  distance  to  the  spring  and  the  weight  of  the 
burden  to  be  borne,  which  are  here  the  prime, 
and  let  us  assume,  the  sole  factors  in  the  objec- 
tive hindrances  encountered  in  the  production 
of  the  water,  are  the  same  for  A  that  they  are 
for  me.  Let  us  also  assume  that — although 
the  objective  obstacles  encountered  in  obtaining 
the  water  are  the  same  for  both,  as  just  said— 
notwithstanding  this  fact  there  may  be  marked 
variations  in  the  individual  cost  to  him  and 
to  me.  Likewise,  though  the  character  of 
the  hindrances  to  be  surmounted  in  the  produc- 
tion of  the  hat  may  not  have  been  revealed,  and 
may  or  may  not  involve  distance  or  weight,  we 
may  safely  suppose — since  normal  conditions 


SUBJECTIVE  AND   OBJECTIVE   ELEMENTS    55 

involving  free  competiton,  or  free  access  to  the 
most  available  source  of  supply  are  assumed— 
that  the  hindrances  encountered,  considered  as 
purely  objective  phenomena,  are  identical  for 
both.  But  this  being  established,  how,  in  the 
absence  of  a  unit  or  standard  equally  applicable 
to  the  hindrances  encountered  in  the  production 
of  the  water,  on  the  one  hand,  and  the  hin- 
drances encountered  in  the  production  of  the  hat, 
on  the  other,  can  we  intelligently  determine  the 
relation  between  them  ? 

In  order  to  secure  a  satisfactory  unit,  it  is  a 
self-evident  proposition  that  the  unit  or  standard 
for  the  measurement  of  objective  phenomena 
must  have  something  in  common  with  the 
phenomena  measured.  This,  of  course,  is  to  be 
admitted.  Then,  also,  it  is  apparent  that  the 
hindrances  to  acquisition  of  the  water  and  the 
hat  are  different  in  kind:  in  the  case  of  water 
they  involve  distance  and  the  carrying  of  weight, 
while  in  the  case  of  the  hat  distance  or  weight 
might  not  enter  at  all.  There  is  thus  absent, 
as  yet,  any  impersonal  or  objective  standard  by 
which  we  may  make  an  intelligent  comparison 
between  these  hindrances.  How,  in  fact,  a 
practical  comparison  is  arrived  at  by  the  use  of 
money  will  be  discussed  in  chapter  xii. 


COST  A  DOUBLE  VARIABLE 


CHAPTER  VI 
COST  A  DOUBLE   VARIABLE 

§  i.  By  service  is  meant  the  doing  for  another 
something  that  will  add  to  his  well-being. 
By  cost  is  meant  the  impairment  of  well-being 
caused  by  the  subjective  effort  incident  to  sur- 
mounting the  hindrance.  The  measure  of  A's 
service  to  me  is  found,  not  at  all  in  the  cost- 
impairment  to  him,  but  in  the  amount  of  cost- 
impairment  to  me  which  he  has  averted  by 
providing  me  with  an  article,  instead  of  obliging 
me  to  produce  it  myself.  Thus,  service  is  a 
means  of  averting  cost;  and  the  utility  of  the 
service  is  measured  by  the  amount  of  cost-im- 
pairment it  averts.  The  value  of  the  service  to 
me  in  providing  me  with  a  bucket  of  water — 
that  is,  what  I  would  give  for  the  water — is 
directly  affected  by  the  cost-impairment  averted 
by  him  who  brings  the  water.  Thus  the  value 
of  this  service  will  be  influenced  by  everything 
which  touches  this  cost-impairment  to  me: 
either  (i)  anything  which  would  change  the 
objective  hindrances  in  obtaining  water;  or, 
(2)  anything  which  would  affect  my  personal 
capacity  in  overcoming  the  hindrances  in  getting 
water. 

59 


6o  TRUE  NATURE  OF  VALUE 

§  2.  The  two  correlative  terms,  hindrance 
and  cost,  however,  may  each  vary,  and  thus 
affect  the  value  of  the  service.  Not  only  does 
cost  vary  directly  with  the  gravities  of  the  objec- 
tive hindrances  encountered,  but  it  will  at  one 
and  the  same  time  vary  in  inverse  ratio  with 
the  productive  capacities  of  every  individual  who 
surmounts  them.  Cost-impairment,  other  things 
being  constant,  will  vary  inversely  with  personal 
capacities  in  overcoming  a  given  hindrance. 
Or,  if  personal  capacities  are  supposed  constant 
cost-impairment  will  vary  directly  with  the 
increase  or  decrease  in  the  objective  hindrances. 

Supposing  the  personal  capacity  to  be  con- 
stant, cost  will  increase  or  decrease  only  with 
the  gravity  of  the  hindrance  encountered  and 
surmounted.  On  the  other  hand,  supposing  the 
hindrance  to  be  surmounted  to  be  constant,  the 
personal  cost  will  increase  as  the  capacity  of 
the  individual  who  surmounts  it  decreases,  and 
decrease  as  his  capacity  increases.  That  is  to 
say,  cost  which,  with  a  given  capacity,  will  vary 
directly  with  the  gravity  of  the  resistance  en- 
countered, will  vary  inversely  with  the  capacity 
of  the  individual  who  by  the  exercise  of  this 
capacity  surmounts  it.  Therefore,  because  cost, 
which  is  the  subjective  effect  of  labor,  increases 
and  decreases  in  direct  ratio  with  the  hindrances 


COST  A  DOUBLE  VARIABLE  61 

surmounted,  and  in  inverse  ratio  with  the 
capacity  of  the  individual  who  surmounts  it, 
it  follows  that  to  each  individual  cost  indicates 
and  measures  the  relation  which  his  capacity  to 
surmount  a  given  hindrance  bears  to  the  hin- 
drance surmounted.  In  brief,  cost  is  no  less  the 
measure  of  the  incapacity — or  lack  of  perfect 
capacity — of  the  individual  than  of  the  gravity 
of  an  economic  hindrance  surmounted. 

It  seems  apparent,  therefore,  that,  though 
the  relation  between  hindrance  and  cost  is  so 
intimate  that  the  mere  mention  of  one  suggests 
the  other,  they  are  by  no  means  so  intimately 
associated  as  cause  and  effect.  While  it  is  true 
that  without  hindrance  there  would  be  no  cost, 
the  converse  of  this  is  not  true;  since  the  mere 
fact  of  hindrance  (that  is,  potential  resistance) 
to  be  overcome  in  order  to  secure  changes  in 
objective  conditions  imposes  no  cost-impairment. 
Thus  in  the  present  instance,  the  distance  to  the 
spring  and  the  weight  of  the  bucket  of  water 
which  it  is  here  assumed  are  the  sole  factors  of 
hindrance  encountered  in  its  production  seem  to 
lie  in  the  environment  and  to  exist,  so  to  speak, 
in  the  very  nature  of  objective  conditions,  or  in 
my  relation  to  them.  They  exist,  not  only  sepa- 
rate and  apart  from  my  needs,  separate  from  my 
capacity  to  minister  to  them,  and,  for  that  matter, 


62  TRUE  NATURE  OF  VALUE 

also,  separate  from  any  inclination  or  incentive 
on  my  part  to  employ  my  capacity  to  produce  it. 

The  impairment  of  well-being  that  constitutes 
cost,  however,  does  not  appear — indeed,  cannot 
appear — until  by  an  application  of  subjective 
energy  (of  effort  or  labor)  I  engage  in  the  task  of 
surmounting  the  obstacles  that  constitute  eco- 
nomic hindrances.  Thus  cost  is  the  immediate 
and  direct  result,  not  of  the  objective  forces 
that  may  operate  to  hinder  changes  in  an  existing 
order  of  things — though  without  such  hindrance 
there  could  be  no  cost — but  of  an  actual  expendi- 
ture of  subjective  energy  in  the  task  of  surmount- 
ing such  hindrances;  that  is,  it  is  the  direct 
effect,  not  of  the  difficulty  arising  from  the 
hindrances,  but  of  effort.  The  hindrance  rend- 
ers labor  necessary;  it  is  labor  that  imposes 
cost. 

Under  the  supposition  that  personal  capacities 
are  constant,  then  cost-impairment  to  any  pro 
ducer  would  be  directly  proportional  to  the 
objective  hindrance  to  be  overcome.  On  this 
assumption,  the  theory  of  value  wrould  be  very 
simple  and  brief,  to  wit :  an  increase  or  decrease 
of  objective  hindrance  would  increase  or  de- 
crease the  cost-impairment  I  would  have  to 
undergo  if  I  myself  had  to  produce  the  article; 
according  to  the  changes  in  hindrance,  A,  who 


COST  A  DOUBLE  VARIABLE  63 

supplies  me  with  the  article,  does  me  a  propor- 
tionally greater  or  less  service;  the  value  of  the 
service  is  greater  or  less  according  to  the  cost- 
impairment  averted;  hence,  the  exchange  value 
of  the  article  to  me  is  greater  or  less,  compared 
with  other  things  whose  objective  hindrance  has 
remained  unchanged. 

As  a  matter  of  fact,  however,  the  case  is  not 
so  simple,  solely  because  personal  capacities  are 
not  constant.  Not  only  are  there  differences  in 
individuals  in  this  respect,  but  there  are  differ- 
ences for  the  same  individual  at  different  times. 
That  is,  hindrances  being  constant,  the  cost 
must  vary  with  the  individual  capacity  in  pro- 
duction. Thus,  we  are  led  to  the  conclusion 
that  there  is  no  necessary  quantitative  relation 
between  the  hindrances  surmounted  and  the 
cost.  For  instance,  if  the  hat  and  the  water 
exchange  freely  one  for  the  other  on  a  basis  of 
equivalence,  this  equivalence  could  not  have 
been  based  on  the  equivalence  of  cost,  since  in 
our  illustration  the  hindrance  remaining  constant 
to  both  A  and  me,  the  cost  of  the  hat  and  water 
varies.  In  the  supposition  it  will  be  remembered 
that  the  hindrance  to  be  surmounted  in  getting 
the  water  was  the  same  for  both  of  us,  and  like- 
wise the  hindrance  attendant  upon  weaving 
straw  into  a  hat  was  the  same  for  both  of  us; 


64  TRUE  NATURE  OF  VALUE 

but  it  was  assumed  that  the  capacity  of  A  to 
produce  the  water  varied  from  his  capacity  to 
produce  the  hat. 

The  utility  of  A's  service  in  supplying  me  with 
the  water  is  directly  contingent  upon  the  cost- 
impairment  which  his  service  in  supplying  the 
water  has  rendered  it  unnecessary  for  me  to 
undergo.  As  it  would  have  cost  me  10  to  pro- 
duce it,  and  A's  service  relieves  me  of  the  neces- 
sity of  so  doing,  it  must  follow  that  his  service  in 
supplying  the  water  will  have  a  utility  to  me  of 
10.  As  a  means,  however,  of  averting  thirst, 
the  water  has  a  utility  to  me  of  100.  Thus,  A's 
service  in  supplying  me  with  the  water  has  a 
utility  of  10,  considered  as  a  means  of  averting 
the  cost-impairment  its  production  by  me 
would  certainly  have  inflicted. 

§  3.  Cost,  as  we  have  shown,  is  intimately 
related  to  personal  capacity.  Cost  results 
from,  and  is  no  less  the  direct  effect  of,  finite 
limitations  in  the  application  of  subjective  energy 
to  the  task  of  surmounting  a  hindrance,  than 
from  the  gravity  of  the  objective  hindrance  that 
renders  this  application  of  energy  necessary. 
Hence  it  would  seem  no  less  illogical  to  treat 
cost  as  the  immediate  and  direct  effect  of  these 
limitations  in  our  capacity  than  to  treat  it 


COST  A  DOUBLE  VARIABLE  65 

solely  as  the  effect  of  the  hindrances  that  rendei 
it  necessary. 

§  4.  We  have  thus  far  assumed,  and  very 
properly,  that  the  incentive  to  the  exchange  of 
the  water  and  the  hat  between  A  and  me  had 
been  found  in  the  net  augmentation  of  well- 
being,  which,  as  profit,  has  fallen  to  the  share  of 
each  as  an  immediate  and  direct  result  of  this 
exchange  of  a  service  that  supplies  one  of  these 
products  for  a  service  that  supplies  the  other. 
Recurring  to  our  illustration,  although  A's 
profit  is  fourfold  greater  than  mine  and  seem- 
ingly a  factor  of  the  first  importance  in  fixing 
the  terms  of  an  exchange  that  shall  be  equitable 
and  just  to  both  parties,  it  has  not  been,  and, 
it  will  be  seen,  cannot  by  right  be,  taken  into 
consideration. 

This  is  due  to  the  fact  that  profit — which,  as 
has  been  shown,  has  its  origin  and  limitation  in 
variations  in  cost,  due  to  variations  in  individual 
capacity  to  surmount  the  hindrances  of  the  two 
products  exchanged — is  no  less  an  evidence  of 
relatively  inferior  capacity  in  the  production  of 
the  thing  acquired,  than  of  relatively  superior 
capacity  in  the  production  of  the  thing  parted 
with.  Thus,  in  our  illustration,  we  find  that  A's 
profit  of  4  arises  from  the  fact  that,  while  his 


66  TRUE  NATURE  OF  VALUE 

capacity  to  obtain  the  water  enables  him  to  do 
so  at  a  cost  of  but  8,  his  capacity  to  produce 
the  hat  is  relatively  so  much  lower  that  it  cost 
him  one-half  more,  or  12,  to  produce  it.  This 
profit,  it  should  be  observed,  would  be  the  same 
had  we  assumed  that  while  it  cost  A  16  to  pro- 
duce the  water  it  would  have  cost  him  20  to 
produce  the  hat.  The  figures  employed  are  not 
important ;  what  is  important  is  that  there  should 
be  differences  in  the  comparative  capacity  to 
produce  the  two  articles.  If,  in  the  last  supposi- 
tion, it  cost  him  4  more  to  produce  the  hat  than 
it  did  the  water  his  profit  would  necessarily  be  4. 
Whether  the  apparently  excessive  profit  falling 
to  the  share  of  A  arises  from  a  relatively  high 
capacity  in  the  production  of  the  water,  or  from 
a  comparatively  low  capacity  in  the  production 
of  the  hat,  is  a  matter  that  does  not  concern  me. 
Indeed,  as  has  been  seen,  his  profit  is  in  no  way 
contingent  upon  the  relation  which  his  capacity 
bears  to  mine ;  but  solely  upon  the  relation  which 
his  capacity  to  surmount  the  hindrance  of  the 
thing  parted  with  bears  to  his  capacity  to  sur- 
mount the  hindrance  of  the  thing  acquired 
through  the  exchange;  and  as  this  variation  in 
his  capacity  is  great  his  profit  is  great,  without 
in  the  slightest  degree  affecting  my  own  interests. 
Since  profit  represents  only  the  difference  in 


COST  A  DOUBLE   VARIABLE  67 

individual  cost  attendant  upon  surmounting 
these  two  hindrances,  it  is  evident  that  relatively 
inferior  capacity  in  the  production  of  the  thing 
acquired  is  a  no  less  fruitful  source  of  profit 
than  relatively  superior  capacity  in  the  pro- 
duction of  the  thing  parted  with. 


VALUE    OF    SERVICE    DIRECTLY    AF- 
FECTED  BY  VARIATIONS 
IN  HINDRANCE 


CHAPTER  VII 

VALUE    OF    SERVICE    DIRECTLY   AFFECTED 
BY  VARIATIONS  IN  HINDRANCE 

§  i.  We  have  seen  that  cost-impairment  is  a 
function  of  two  variables:  (i)  the  variations  in 
personal  capacity;  and,  (2)  the  variations  in 
objective  hindrance;  also  that  cost-impairment 
averted  is  a  direct  measure  of  the  value  of  a 
service.  Now,  however,  in  investigating  the 
effect  of  (i),  or  variations  in  personal  capacity, 
upon  the  value  of  a  service,  we  must  in  our  minds 
separate  cost  from  variations  in  cost.  As  an 
influence  on  exchange  value  cost,  of  course, 
remains;  but  variations  of  cost,  as  will  be  shown, 
are  practically  excluded.  Variations  in  cost 
due  to  variations  in  individual  capacity,  as 
distinguished  from  variations  in  cost  due  to 
differences  in  the  gravity  of  the  hindrances  en- 
countered, can  no  more  be  taken  into  account 
as  a  factor  in  fixing  the  terms  of  an  equitable  and 
just  exchange,  than  can  the  equally  personal 
and  no  less  variable  subjective  needs  that  serve 
as  a  basis  for  determining  the  greater  or  less 
utility  of  the  products  exchanged. 

Consequently  we  are  brought  to  see  that  the 
individual  cost  that  measures  and  determines 

71 


72  TRUE  NATURE  OF  VALUE 

the  utility  of  a  service  that  averts  it,  no  less  than 
the  individual  need  upon  which  rests  the  utility 
of  the  product  supplied,  are  for  obvious  reasons 
unrevealed  by  either  party  to  the  other,  when 
fixing  the  terms  of  contemplated  exchange  that 
shall  be  fair  and  just  to  both.  But  even  though 
individual  cost  should  be  revealed,  as  has  been 
assumed  in  the  exchange  between  A  and  me 
of  the  water  for  the  hat,  the  fact  that  the  cost 
varies  with  personal  capacity  must  lead  to  its 
elimination  by  common  consent;  since  the 
relation  which  A's  capacity  bears  to  mine,  or 
mine  to  his,  or  the  capacities  of  either  of  us  to 
the  capacities  of  our  fellows,  affords  no  reliable 
data  for  making  a  true  comparison  between  the 
utility  of  these  two  services  based  upon  the 
hindrances  they  surmount. 

Thus  we  are  brought  to  see  that,  in  negotia- 
tions preliminary  to  an  economic  exchange- 
(i)  the  personal  equation  traceable  to  the  varia- 
tions in  the  capacity  of  the  individual,  no  less 
than  (2)  the  variations  in  the  utility  of  products 
due  to  variations  in  individual  needs  for  them, 
are  instinctively  neutralized  or  otherwise  elim- 
inated from  consideration,  because  they  afford 
no  common  data  for  fixing  the  terms  of  an  ex- 
change which  shall  be  fair  and  just  to  both 
parties.  In  other  words,  only  such  data  are 


VALUE  OF  SERVICE  DIRECTLY  AFFECTED   73 

considered  which,  being  impersonal  and  having  a 
direct  bearing  upon  the  services  under  consider- 
ation, are  mutually  acceptable  and  necessary  in 
determining  a  quantitative  relation  between 
them,  considered  solely  as  a  means  of  overcoming 
the  obstacles  that  constitute  economic  hindrance- 
In  short,  we  are  brought  to  the  conclusion  that 
in  exchange  value  personal  cost  and  personal 
utility  are  negligible;  and  only  those  elements 
are  taken  into  account  which  are  based  upon 
impersonal  and  objective  data. 

§  2.  It  seems  a  self-evident  proposition  that 
it  would  be  as  inequitable  for  either  party  to  an 
exchange  of  services  to  prey  upon  the  infirmities 
of  the  other,  as  would  be  the  case  were  one  to 
demand  and  secure  a  share  in  the  profit,  how- 
ever great,  that  equitably  falls  to  the  other  as  a 
consequence  of  his  relatively  inferior  capacity  in 
the  production  of  a  thing  acquired  through 
exchange.  And  since  superior  capacity  in  the 
production  of  one  of  these  products,  or  inferior 
capacity  in  the  production  of  the  other,  is  but  a 
way  of  expressing  his  relative  capacity  for  both, 
we  have  no  right  to  demand  a  share  in  the  profit 
accruing  to  him,  as  a  result  of  a  relatively  supe- 
rior capacity  in  the  production  of  the  thing  he 
parts  with.  That  is,  variations  in  cost  arising 


74  TRUE  NATURE  OF  VALUE 

from  varying  capacities,  as  opposed  to  variations 
in  cost  arising  from  variations  in  objective  hin- 
drance, can  have  no  effect  on  exchange  value. 

In  order  to  point  out  clearly  the  manner  in 
which  subjective  costs  are  eliminated,  we  may 
resort  to  an  enlargement  of  our  previous  illustra- 
tion. We  may  suppose  that  A  and  I  are  placed 
on  a  wide  prairie  where  water  is  to  be  found  one 
mile  to  the  east  and  food  one  mile  to  the  wrest. 
Each  goes  in  the  opposite  direction ;  I  go  for  the 
water  and  A  goes  for  the  food,  thus  rendering 
equal  services  to  each  other,  since  the  hindrances 
incurred  by  each  are  the  same.  The  services 
rendered  are  equal;  the  cost  would  make  no 
difference  in  the  exchange  if  A  were  lame,  and 
if  thereby  the  personal  cost  to  him  were  much 
greater  than  to  me.  Clearly,  if  A  were  alone,  he 
would  himself  have  to  go  for  the  water,  no  matter 
what  his  personal  cost-impairment  was,  and 
likewise  he  would  himself  have  to  go  for  the  food. 
My  being  there  with  a  capacity  different  from  A's 
in  overcoming  the  same  physical  obstacles  in 
each  case  does  not  in  any  way  change  the  value 
of  the  service  rendered  by  A  to  me.  Moreover, 
if  I  refuse  to  get  the  water,  he  could  himself 
obtain  it  only  at  a  cost  proportionate  to  his  own 
personal  sacrifice ;  and  no  matter  what  my  capa- 
city is,  when  I  get  the  water  it  exchanges  for  the 


VALUE  OF  SERVICE  DIRECTLY  AFFECTED   75 

food;  because  if  he  himself  had  gone  for  the 
water  it  would  have  represented  the  same  cost- 
impairment  to  him  as  the  getting  of  the  food. 

§  3.  In  thus  weighing  and  balancing  service 
against  service  we  are  enabled  to  conclude  that 
the  hindrances  encountered  and  surmounted 
in  consummating  this  exchange  are  quantitative 
equivalents,  judged,  not  by  a  consideration  of 
individual  cost  incurred  or  averted — which, 
varying  in  inverse  ratio  with  the  respective 
capacities  of  the  parties  to  the  exchange,  affords 
no  trustworthy  ground  for  intelligent  comparison 
—but  by  consideration  of  data  from  which  the 
personal  equation  has  been  eliminated.  There- 
fore we  must  conclude  that  the  service  rendered 
by  each  is  the  equal  of  that  rendered  by  the  other. 

Strictly  speaking,  the  only  thing  we  can  do 
for  another,  the  only  way  in  which,  by  the  rendi- 
tion of  a  service,  we  can  add  to  the  sum  of  his 
well-being,  is  to  supply  him  with  a  hindrance- 
bearing  product  needful  to  him.  By  so  doing 
we  relieve  him  from  the  cost-impairment  that, 
but  for  our  service,  must  have  attended  its  acqui- 
sition by  him.  As  is  the  importance  of  the 
service  which  we  do  for  him  measured  by  the 
hindrance  surmounted  for  him,  such  is  the 
importance  of  that  which  by  right  we  may 


76  TRUE  NATURE  OF  VALUE 

demand  that  he  do  for  us.  For  example,  in 
supplying  me  with  a  bucket  of  water,  A  renders 
me  a  service.  The  mere  rendition  of  this  service, 
however,  quenches  no  thirst.  If  the  service  did 
quench  the  thirst,  it  is  apparent  that  the  water 
itself  might  be  dispensed  with  altogether,  which 
is  absurd.  All  thai  A  does  for  me,  all  that  he 
can  do  for  me,  consequently  all  that  he  is  entitled 
to  compensation  or  credit  for  doing,  is  measured 
by  the  cost-impairment  his  service  in  supplying 
the  water  has  averted.  Obviously,  equity  demands 
that  in  every  exchange  of  product  for  product  the 
service  that  supplies  one  of  these  products  must  be 
the  exact  equivalent  of  the  service  that  supplies  the 
other,  to  the  end  that  each  party  to  the  trans- 
action may  do  for  the  other  as  much  as  the  other 
does  for  him.  And  this  can  be  accomplished  only 
by  each  surmounting  a  hindrance  that  is  the  exact 
equivalent  of  the  hindrance  surmounted  by  the 
other.  Thus  the  water  and  the  hat  exchange 
for  each  other,  not  because  the  utility  of  the 
products  themselves  is  equal,  but  because 
the  utility  of  the  services  that  supply  them  is 
equal;  the  utility  of  the  services  in  this  case, 
as  in  every  equitable  exchange,  is  measured 
directly  by  the  objective  hindrances  to  be  over- 
come by  each  party  to  the  transaction  in  supply- 
ing the  products.  Moreover,  it  should  be  ob- 


VALUE  OF  SERVICE  DIRECTLY  AFFECTED   77 

served  that  the  outside  limit  to  the  utility  of  the 
service  is  of  course  the  utility  of  the  product. 
Thus  we  are  brought  to  the  important  conclusion 
that  the  only  measure  of  the  utility  of  a  service 
is  to  be  found  in  the  greater  or  less  hindrance  to 
be  overcome.  Therefore,  to  render  just  compen- 
sation for  a  service  that  surmounts  a  given  hin- 
drance, a  compensatory  service  that  surmounts, 
an  equivalent,  but  different,  hindrance  must  be 
rendered.  And  it  might  be  added  that,  even  if 
they  surmount  the  same  hindrance  at  different 
times,  there  would  likewise  follow  a  true  and 
equitable  compensation. 

§  4.  Thus  we  reach  the  conclusion  that  the 
exchange  in  question  is  based  upon  that  golden 
rule  of  equity  and  justice  between  man  and  man 
upon  which,  in  its  last  analysis,  all  rational  or 
economic  activity  rests,  namely:  "Do  FOR 
OTHERS  AS  THEY  DO  FOR  YOU."  We  shall  find 
that  this  rule,  deduced  from  a  study  of  equitable 
exchange,  has  a  wide  and  general  application.  If 
not  since  the  world  began,  at  least  since  right 
has  succeeded  might  as  a  rule  of  social  conduct, 
it  has  had  instinctive  recognition  as  the  dominant 
factor  in  fixing  the  terms  of  every  equitable 
exchange.  Even  children  at  their  play  instinc- 
tively insist  upon  "turn  about"  in  the  perform- 


78  TRUE  NATURE  OF  VALUE 

ance  of  its  onerous  features.  Only  those  who 
take  their  turn  in  drawing  back  the  empty  sled 
may  justly  claim  a  share  in  the  coasting.  This 
basing  equality  of  exchange  value  on  the 
equality  of  the  services  rendered  is  self-evident, 
and  is  so  axiomatic  as  to  defy  proof;  that 
is,  the  services  are  equal  where  the  hindrances 
necessary  to  be  surmounted  are  of  equivalent 
gravity. 

An  altruistic  modification  of  the  social  law  is 
found  in  the  Golden  Rule  of  the  Master:  "Do 
for  others  as  ye  would  that  they  do  for  you." 
This  rule^  since  it  seems  to  suggest  a  principle 
of  social  conduct  that  is  higher  and  better  than, 
or  at  least  an  improvement  upon  that  based  upon 
equal  and  exact  justice  for  all,  is  theoretically 
beautiful;  but  it  is  upon  careful  consideration 
found  to  be  too  vague  and  indefinite  for  general 
use,  and  if  left  to  the  interpretation  of  those  who 
attach  greater  importance  to  individual  than  to 
social  or  racial  well-being,  would  lead  to  confu- 
sion, if  not  to  anarchy.  Although  in  accordance 
with  that  conception  of  human  destiny  that  re- 
gards the  well-being  of  the  race  as  superior  to 
individual  well-being,  it  seems  to  be  in  direct  con- 
flict with  the  law  of  the  survival  of  the  fittest.  If 
this  rule  is  intended  to  suggest  anything  more 
than  "justice  tempered  with  mercy,"  or  charity 


VALUE  OF  SERVICE  DIRECTLY  AFFECTED   79 

—that  is,  if  it  is  intended  as  a  rule  that  demands 
a  temporary  sacrifice  of  individual  well-being 
for  the  benefit  of  all,  to  the  end  that  the  final 
result  will  benefit  the  individual  more  than  the 
present  sacrifice  has  inconvenienced  him — it  is 
too  ethereal  and  too  spiritual  for  the  compre- 
hension of  finite  and  selfish  minds.  It  lacks 
the  definiteness,  the  exactness,  of  a  formula 
applicable  to  the  affairs  of  every-day  life. 


FREE  COMPETITION  AND  PERSONAL 
COST 


CHAPTER  VIII 

FREE  COMPETITION  AND  PERSONAL  COST 
§  i.  As  has  been  said,  but  for  the  fact  of 
marked  variations  in  the  capacities  of  the  indi- 
vidual, cost  will  vary  in  direct  ratio  to  the 
hindrances  to  be  overcome;  that  is,  it  will 
increase  or  decrease  only  as  the  objective  hin- 
drances increase  and  decrease.  Consequently,  if 
variation  in  capacity  could  be  eliminated  from 
consideration,  it  is  evident  that  the  normal 
relation  between  the  cost  inflicted  upon  the 
individual  in  the  production  of  two  products 
whose  hindrances  are  equivalents  would  also  be 
that  of  equivalents.  In  society  as  it  now  exists 
the  actual  elimination  of  variableness  of  individ- 
ual capacity,  is,  as  has  been  said,  not  only  quite 
out  of  the  question,  but,  on  the  whole,  apparently 
undesirable.  Hence,  we  shall  find  that  by  in- 
suring to  each  member  of  society  such  perfect 
freedom  of  choice  as  enables  him  to  engage  in 
the  production  of  the  products  in  which  his 
capacity  is  relatively  speaking  high,  to  be  ex- 
changed for  products  in  the  production  of  which 
his  capacity  is  relatively  low,  the  disturbing  effect 
of  these  variations  is  so  far  neutralized  as  to 
secure  the  free  exchange  of  product  for  product 

83 


84  TRUE  NATURE  OF  VALUE 

upon    the    equitable    basis    of   equivalence    in 
objective  hindrances  surmounted  by  each. 

Having  for  his  aim  the  greatest  possible  well- 
being  for  his  efforts,  an  individual  could  not, 
under  free  competition,  increase  his  well-being 
by  producing  the  other  articles  already  provided 
him  by  others.  The  personal  cost-impairment 
averted  is  under  free  competiton  the  greatest 
possible.  This  being  so,  the  only  other  way  in 
which  his  cost-impairment  can  be  affected  is  by 
changes  affecting  objective  hindrances.  Thus 
variations  in  personal  costs  may  under  free 
competition  be  practically  neglected. 

§  2.  Under  normal  conditions  of  free  compe- 
tition— that  is,  in  the  absence  of  that  most  fruit- 
ful, if  not  the  only  source  of  all  economic  inequity 
between  man  and  man,  the  monopolistic  condi- 
tions— the  individual  would  be  at  liberty  to 
engage  in  the  production  of  those  products  for 
which  in  his  opinion  his  capacity,  when  compared 
with  his  capacity  to  produce  other  needful  prod- 
ucts, is  highest.  By  exchanging  at  the  estab- 
lished competitive  or  market  ratio — that  is, 
upon  the  equitable  basis  of  equivalence  in  hin- 
drances surmounted — those  products  for  which 
his  capacity  is  relatively  high  for  those  for  which 
his  capacity  is  relatively  low,  he  promotes  his 


FREE   COMPETITION  AND   PERSONAL   COST  85 

well-being  in  the  highest  degree  by  securing  the 
greatest  returns  for  his  efforts,  that  is,  by  secur- 
ing the  greatest  returns  for  the  cost-impairment 
endured.  And  it  should  be  noted  that  superior 
capacity  may  be  the  result  of  natural,  or  per- 
sonal, or  artificial  superiority. 

That  is,  under  free  competition  the  measure 
of  the  utility  of  the  service  is  to  be  found 
in  the  gravity  of  the  hindrances  necessarily 
surmounted.  In  short,  an  equivalence  of 
hindrances  surmounted  is  the  only  basis  of 
equity  in  exchange  value.  To  free  competition 
between  all  who  care  to  engage  in  the  pro- 
duction of  any  products  by  surmounting  their 
hindrances — whether  these  products  are  for  use, 
or  to  be  exchanged  for  other  products  having 
hindrances — must  we  look  for  the  establishment 
and  maintenance  of  an  equitable  ratio  of  ex- 
change of  service  for  service  in  the  open  market 
upon  a  basis  of  equivalence  in  the  hindrances  to 
be  surmounted  in  supplying  the  products  of 
exchange.  That  is,  a  ratio  of  exchange  which 
is  based  upon  the  fundamental  idea  of  each  doing 
for  the  other  as  much — no  more,  no  less — as  the 
other  does  for  him. 

Under  the  supposition  of  free  competition 
it  can  be  seen  more  exactly  what  specifically  con- 
stitutes profit.  Profit  is  the  gain,  the  advantage, 


86  TRUE  NATURE  OF  VALUE 

the  augmentation  of  well-being  that  accrues  to 
an  individual  from  the  exchange  of  products  in 
the  production  of  which  his  capacity  is  relatively 
high  for  other  products  for  which  his  capacity 
is  relatively  low,  on  a  basis  of  equivalence  of 
hindrances  established  by  free  competition  in 
the  open  market.  In  other  words,  it  is  less 
cost — due  to  relatively  higher  capacities — atten- 
dant upon  producing  and  supplying  the  thing 
parted  with  than  would  have  attended  the  pro- 
duction of  the  thing  acquired. 

§  3.  We  are  now  in  a  position  to  state  what 
should  be  the  conditions  of  exchange  value  under 
the  normal  conditions  of  free  competition.  As  is 
understood,  we  are  in  search  of  a  basis  of  equit- 
able exchange  value  as  between  the  persons 
concerned  in  the  exchange.  It  has  already  been 
pointed  out  that  variations  in  personal  cost  due 
to  variations  in  individual  capacity  should  be 
disregarded  in  fixing  the  conditions  that  con- 
stitute an  equitable  exchange.  Inasmuch  as 
variations  in  individual  capacity  are  facts  of 
society  which  must  be  admitted,  we  shall  find 
that,  by  insuring  to  each  member  of  society  that 
perfect  freedom  of  choice  that  enables  him  to 
engage  in  the  production  of  that  for  which  his 
capacity  is,  relatively  speaking,  high,  to  be  ex- 


FREE   COMPETITION  AND   PERSONAL   COST  87 

changed  for  other  products  in  the  production  of 
which  his  capacity  is  relatively  low,  the  disturb- 
ing effect  of  these  variations  in  personal  capacity 
is  so  far  neutralized  as  to  secure  the  free  exchange 
of  product  for  product  in  the  open  market  upon 
the  equitable  basis  of  an  equivalence  in  the 
hindrances  to  be  surmounted  in  producing  them. 
But  for  the  fact  of  marked  variations  in  the 
capacities  of  individuals,  cost,  as  we  have  seen, 
would  vary  in  direct  ratio  with  hindrances; 
that  is,  it  would  increase  and  decrease  directly 
as  the  obstacles  to  be  overcome  increase  and 
decrease.  On  the  other  hand,  since  variations 
in  capacity  are  to  be  eliminated  from  considera- 
tion under  normal  conditions  of  free  competition, 
it  is  evident  that  the  normal  relation  between 
the  hindrances  overcome  by  the  individuals  in 
the  production  of  two  products  would  be  that 
of  equivalence  in  gravity.  In  the  normal  con- 
ditions of  free  competition  in  the  open  market 
we  obtain  an  equivalence  between  various 
elements  in  our  problem.  If  marked  variations 
in  cost  due  to  equally  marked  variations  in  the 
capacities  of  individuals  are  eliminated,  then 
the  normal  relation  of  competitive  cost  to  com- 
petitive cost  must  be  that  of  equivalence. 
Obviously,  we  have  then  arrived  at  the  conclu- 
sion that  under  normal  conditions  of  free  com- 


88  TRUE  NATURE  OF  VALUE 

petition  equivalence  in  the  hindrances  of  the 
products  exchanged  is  absolutely  essential  to 
equity.  Moreover,  this  relation  of  equivalence 
in  value,  based  upon  equivalence  in  the  hin- 
drances surmounted,  must  be  the  normal  relation 
between  all  goods  in  every  exchange  of  product 
for  product  in  the  open  market. 

Furthermore,  the  relation  of  equivalence  in 
the  market  prices  of  the  products  exchanged 
is  based  upon  equivalence  in  the  objective 
hindrances  necessary  to  be  surmounted  in  order 
to  produce  them.  The  competitive  price  of  a 
product  in  the  open  market  is  contingent  upon 
the  gravity  of  the  maximum  hindrance  which 
it  will  be  necessary  to  surmount,  in  order  to 
meet  the  demand  of  the  market  at  any  given 
rate.  If  the  demand  is  such  as  to  necessitate 
surmounting  a  greater  hindrance  in  order  to 
meet  it,  the  market  price  will  increase  pro- 
portionately. 

§  4.  After  the  study  of  normal  or  competitive 
conditions  of  exchange — conditions  from  which 
variations  in  individual  capacity  have  been 
eliminated — we  may  now  proceed  to  discuss 
further  the  position  of  groups  of  persons  who 
may  be  regarded  as  competitive  groups.  By 
way  of  illustration,  let  us  assume  that,  in  a 


FREE  COMPETITION  AND   PERSONAL   COST    89 

community  where  certain  products,  Y  and  Z, 
can  be  obtained  only  by  surmounting  some 
hindrance,  they  are  articles  of  daily  use  or  con- 
sumption, and  that  they  are  freely  exchangeable 
one  for  the  other  in  the  open  market,  on  the 
basis  of  equivalence  in  the  hindrances  to  be 
surmounted  in  their  production.  That  is  to 
say,  anyone  who  cares  to  do  so  may,  by  the 
rendition  of  a  service  that  supplies  another  with 
one  of  these  products,  secure  a  return  or  com- 
pensatory service  that  supplies  him  with  the 
other.  First,  to  insure  the  continuance  of  this 
condition  it  will  be  necessary  to  assume  that 
there  is,  on  the  one  hand,  a  sufficiently  numer- 
ous group,  the  capacity  of  whose  members  in 
surmounting  the  hindrance  attendant  upon  the 
production  of  Y  is  relatively  so  much  superior 
to  their  capacity  to  surmount  the  hindrance 
attendant  upon  the  production  of  Z  that  the 
cost-impairment  attendant  thereon  is  enough 
less  to  afford  a  sufficient  incentive  for  profit  to 
induce  the  exchange  of  a  service  that  supplies 
the  former  in  consideration  of  a  return  service 
that  supplies  the  latter.  Second,  we  must,  on 
the  other  hand,  assume  the  existence  of  a 
sufficiently  numerous  group,  the  capacities  of 
whose  members  are  at  such  variance  with  the 
capacities  of  the  preceding  group,  that  they  can 


TRUE  NATURE  OF  VALUE 


surmount  the  difficulty  of  attainment  of  Z  at  so 
much  less  of  cost-impairment  than  they  can 
surmount  the  difficulties  of  attainment  of  Y, 
that  they  profit  by  every  exchange  of  service 
that  supplies  the  former,  in  consideration  of  a 
compensatory  service  that  supplies  them  with 
the  latter.  In  addition,  it  is  probable  that  there 
will  be  another  group  in  existence  the  capacity 
of  whose  members  is  such  that  they  can  sur- 
mount the  hindrances  of  one  of  these  products 
at  the  same  cost-impairment  as  that  attendant 
upon  surmounting  the  hindrances  of  the  other. 
The  fact  of  equivalence  in  the  relative  capaci- 
ties of  each  member  of  this  third  group  to  over- 
come these  two  different,  but  competitively 
equivalent,  hindrances  at  the  same  or  equivalent 
costs,  renders  it  a  matter  of  indifference  to  them 
which  one  they  surmount.  Thus  it  operates  to 
prevent  their  joining  either  of  the  two  competi- 
tive groups.  This  fact  of  equivalence,  however, 
will  not  operate  to  prevent  their  producing 
either  or  both  of  these  products  for  their  own 
use  or  consumption.  Likewise,  it  will  not 
operate  to  prevent  this  third  group  from  pro- 
ducing one  or  both  of  these  products,  indiffer- 
ently, to  be  given  in  exchange  for  other  needful 
products;  provided,  of  course,  that  their  capa- 
city to  overcome  the  hindrances  in  producing 


these  two  products  is,  relatively  speaking,  so 
much  higher  than  their  capacity  to  produce 
other  products  they  may  wish  to  acquire,  that 
the  profit  will  be  sufficient  to  induce  production 
and  exchange. 

Though  the  absence  of  profit  incentive  will 
deter  the  members  of  this  third  group  from 
engaging  in  the  production  of  the  products, 
Y  or  Z,  to  be  exchanged  for  the  other,  it  is  ap- 
parent that  the  existence  of  the  third  group  will 
be  a  factor  of  importance,  proportionate  to  its 
numerical  strength,  in  the  maintenance  of  the 
prevailing  relation  of  equivalence  in  the  market 
prices  of  these  two  products ;  since  any  material 
change  in  the  ratio  of  exchange  between  these 
products  not  warranted  by  changes  in  the 
objective  conditions  that  affect  their  hindrances, 
must,  by  affording  them  a  profit,  operate  to 
transfer  them  from  the  non-competitive  to  the 
competitive  group. 

§  5.  In  passing,  it  may  be  well  to  direct  at- 
tention to  the  fact  that  it  would  be  erroneous 
to  assume  that,  because  the  capacities  of  any 
given  member  of  this  normal  group  are  such 
that  the  cost  attendant  upon  surmounting  one 
of  these  hindrances,  is  the  same  as  that  attendant 
upon  surmounting  the  other,  that  there  will  be 


92  TRUE  NATURE  OF  VALUE 

any  such  approach  to  parity  between  his  capa- 
cities and  the  capacities  of  other  members  of 
the  same  group  that  the  cost-impairment  will 
be  the  same  for  him  that  it  is  to  them.  Indeed, 
it  might  well  happen  that  there  would  be  such 
radical  divergences  in  the  respective  capacities 
of  the  indivdiual  members  of  this  normal 
group  that  the  cost-impairment  inflicted  upon 
one  of  them  in  surmounting  either  and  conse- 
quently both  of  these  hindrances  would  be  two-, 
five-,  and  even  tenfold  greater  than  that  in- 
flicted upon  some  other  member  of  this  same 
group  in  surmounting  the  same  hindrance  or 
hindrances.  The  only  point  to  be  kept  in  mind 
is  that — no  matter  if  one  member  is  tenfold  as 
competent  as  another  member  of  this  third 
group — this  one  member's  capacity  is  equally 
effective  merely  as  regards  the  production  of 
Y  and  Z. 

That  there  would  be  equally  marked  differ- 
ences in  the  capacities — and  consequent  costs— 
for  the  members  of  the  group  who  find  profit 
in  the  production  of  Y  to  be  exchanged  for  Z 
and  in  the  capacities  of  the  members  of  the 
group  profiting  by  Z  to  be  exchanged  for  Y,  is 
also  apparent.  As  a  consequence  of  this  marked 
variation  in  the  capacity  of  one  member  of  a 
given  group,  when  compared  with  the  capacity 


FREE   COMPETITION  AND   PERSONAL  COST  93 

of  some  other  member  of  the  same  group,  it  is 
evident  that  there  can  be  no  approach  to  uni- 
formity in  the  profit  accruing  to  one  member 
when  compared  to  that  accruing  to  another,  in 
effecting  like  exchanges. 

This  being  true,  it  is  evident  that,  paradoxical 
as  it  may  seem,  the  profit  accruing  to  him  whose 
capacity  to  produce  the  thing  parted  with  is 
lower  than  that  of  any  other  member  of  the 
group,  may,  owing  to  his  relatively  greater 
incapacity  to  produce  the  thing  acquired  through 
exchange,  reap  a  much  greater  profit  from  the 
exchange  than  other  members  of  the  group. 
Thus  it  is  a  matter  of  little  consequence  how 
widely  the  capacity  of  a  given  member  of  a 
competitive  group  may  differ  from  what  may 
be  termed  the  general  or  average  capacity  of 
the  group;  since  his  profit  is  wholly  contingent 
upon  the  degree  in  which  his  capacity  to  produce 
the  thing  parted  with  exceeds  his  capacity  to 
produce  the  thing  acquired,  through  the  ex- 
change of  service  for  service.  So  long  as  his 
capacity  to  produce  the  former  greatly  exceeds 
his  capacity  to  produce  the  latter,  he  will  con- 
tinue to  profit  greatly  by  every  exchange,  even 
though  his  capacity  to  produce  the  product  for 
which  his  capacity  is  greatest  is  greatly  below 
the  average. 


94  TRUE  NATURE  OF  VALUE 

Hence,  it  appears  that,  through  free  and  open 
competition  between  those  who  for  the  profit 
that  by  right  accrues  to  them  as  a  result  of  their 
ability  to  exchange  a  product,  in  the  production 
of  which  their  capacity  is  relatively  high,  for 
one  in  the  production  of  which  their  capacity 
is  relatively  low,  the  ratio  of  exchange  between 
the  products  involved  in  the  transaction  is 
established  and  maintained  upon  the  only 
equitable  basis — that  of  competitive  equivalence 
in  the  hindrances  to  be  surmounted  in  their 
production.  In  brief,  we  are  led  to  the  con- 
clusion that  it  is  through  free  competition  alone 
that  the  market  ratio  of  exchange  between  two 
given  products  is  maintained  upon  the  equitable 
basis  of  each  party  to  the  transaction  doing 
for  the  other  as  much  as  the  other  does  for  him. 


LAW  OF  EXCHANGE  VALUE 


CHAPTER  IX 
LAW  OF  EXCHANGE  VALUE 

§  i .  In  the  exchange  of  the  water  for  the  hat 
we  found  an  exact  equivalence  in  what  is  termed 
"the  value"  of  these  two  products — meaning 
thereby  equivalence  in  the  hindrance  each 
service  surmounts  in  order  to  supply  them. 
Moreover,  this  declaration  of  equivalence  is 
such  that  it  meets  the  instant  and  unqualified 
assent  of  all  who  are  familiar  with  the  terms 
of  the  transaction;  and  it  seems  to  imply  a 
more  perfect  comprehension  of  the  subtleties  of 
value  than  "science  has  yet  attained."1 

A  undertakes  to  render  me  a  service  involving 
the  surmounting  of  a  specific  hindrance  in  con- 
sideration of  my  rendering  him  a  compensatory 
service,  involving  the  surmounting  of  a  different, 
but  no  less  specific,  hindrance  of  like  gravity. 
The  fact  that  there  is  emphatic  declaration  of 
equivalence  between  the  values  of  the  two  prod- 
ucts, and  the  fact  that  there  is  a  common  recog- 
nition of  this  equality  by  all,  is  conclusive  evi- 
dence that  this  parity  of  value  is  not  traceable 
to  the  properties,  qualities,  or  attributes  inherent 
in,  and,  therefore,  common  to,  both.  Least  of 

*  J.  B.  Clark,  Philosophy  o)  Wealth,  p.  75. 
97 


98  TRUE  NATURE  OF  VALUE 

all  does  it  suggest  any  necessary  approach  to 
equivalence  in  the  greater  or  less  utilities  of 
these  two  products,  when  employed  as  a  means 
of  promoting  the  well-being  of  the  parties  to  the 
transaction  through  use  or  consumption. 

In  our  former  illustration,  it  was  supposed 
that  the  spring  from  which  the  water  must  be 
taken  was  one  mile  distant.  We  will  now  assume 
that  this  spring  is  no  longer  available,  and  that, 
as  a  consequence,  the  water  must  now  be  pro- 
cured from  a  spring  two  miles  distant.  The 
moment  this  fact  is  established  A  will  withdraw 
his  offer  at  the  former  quotation,  and  instead  of 
agreeing  to  supply  me  with  a  bucket  of  water 
for  one  hat,  he  will  now  demand  two  hats  as  a 
compensation  for  his  service  in  supplying  it. 

It  seems  to  be  a  self-evident  proposition  that 
the  changes  in  the  conditions  of  the  environment, 
which  have  resulted  in  doubling  the  hindrances 
necessary  to  be  surmounted  in  producing  and 
supplying  the  bucket  of  water,  have  in  no  degree 
affected  the  gravity  of  the  need  upon  which  a 
greater  or  less  utility  of  the  water  rests.  No 
more  does  it  add  to,  or  detract  from,  the  efficacy 
of  the  water  when  employed  as  a  means  of 
ministering  to  thirst.  Indeed,  regardless  of 
changes  in  the  gravity  of  hindrances  to  be  sur- 
mounted, the  impairment  of  well-being  that 


LAW   OF   EXCHANGE  VALUE  99 

would  result  from  deprivation  of  water  for  a 
period  of  twenty-four  hours  would  still  be  100. 

§  2.  Though  there  has  been  no  change  either 
in  the  inherent  qualities  of  the  water  or  in  the 
gravity  of  the  need  it  ministers  to,  and  conse- 
quently in  its  utility,  it  would  be  absurd  were  I 
to  insist  that  there  had  been  no  increase  in  the 
utility  or  value  of  the  service  that  supplies  it,  and, 
consequently,  that  the  demand  for  increased 
compensation  therefor  would  be  equitable.  On 
the  contrary,  no  sooner  am  I  convinced  that  the 
gravity  of  the  hindrance  which  A  must  surmount 
in  order  to  supply  me  with  the  water  has  been 
doubled,  than  I  am  compelled  to  admit  that  he 
is  justly  entitled  to  double  the  compensation 
for  his  service  in  surmounting  this  hindrance. 
Hence,  if  we  assume  that  the  hindrance  encoun- 
tered in  obtaining  a  hat  remains  constant,  I  am 
irresistibly  compelled  to  admit  that,  if  one  hat 
was  an  equitable  compensation  for  A's  service 
in  supplying  me  with  one  bucket  of  water  when 
the  hindrance  was  represented  by  a  spring  one 
mile  distant,  two  hats  would  be  required  to  make 
equitable  compensation  for  a  service  that  supplies 
me  with  one  bucket  of  water  from  a  spring  two 
miles  distant.  This  outcome  would  be  equit- 
able, not  because  of  any  increase  in  the  utility 


100  TRUE  NATURE  OF  VALUE 

of  the  product,  but  simply  and  solely  because 
the  hindrance  which  he  must  now  surmount 
being  doubled,  the  utility  of  his  service  in  sup- 
plying the  water  has  doubled.  No  sooner  have 
we  agreed  to  an  exchange  of  product  for  product 
on  this  basis,  or,  to  be  more  accurate,  of  a  service 
that  supplies  two  hats  as  compensation  for  a 
service  that  supplies  one  bucket  of  water  when 
the  hindrance  has  been  doubled,  than  we  shall 
say:  "The  value  of  the  water  is  not  one,  but 
two  hats;"  or  conversely.  And  again  in  this 
case  the  declaration  of  equivalence  would  meet 
the  approval  of  everyone  of  sound  mind  who  is 
made  familiar  with  existing  conditions  affecting 
the  hindrances  to  be  surmounted  in  supplying 
the  two  products  exchanged. 

Likewise,  if,  owing  to  further  changes  in  con- 
ditions of  environment,  the  most  available 
spring  from  which  to  secure  my  bucket  of  water 
is  found  to  lie  at  a  distance  of  five  or  ten  miles, 
it  is  evident  that,  all  else  being  equal,  the  hin- 
drance to  be  surmounted  in  order  to  produce  and 
supply  a  bucket  of  water,  would  be  five-  or  ten- 
fold greater,  as  the  case  may  be,  than  that 
attendant  upon  supplying  it  from  the  spring 
but  one-fifth  or  one-tenth  of  these  distances. 
This  being  true,  it  is  evident  that  A  would  be 
justified  in  demanding  five  hats  or  ten  hats,  as 


LAW  OF   EXCHANGE  VALUE  101 

the  case  may  be,  for  his  service  in  surmounting 
one  or  the  other  of  these  hindrances  and  for 
supplying  me  with  the  desired  bucket  of  water. 
He  would  be  justified  in  his  demands,  because 
under  normal  conditions  that  which  he  now  does 
for  me — regardless  of  his  individual  capacity, 
which  I  cannot  consider — imposes  a  five-  or  ten- 
fold greater  cost-impairment.  He  would  be 
justified,  because  by  the  rendering  of  his  service 
he  would  relieve  me  of  a  cost-impairment  five- 
or  tenfold  greater  than  would  be  the  case  were 
the  spring  one  instead  of  five  or  ten  miles  distant. 
He  would  be  justified,  because  the  hindrance  he 
surmounts  for  me  is  the  equivalent  of  the  hin- 
drance which  he  demands  that  I  surmount  for 
him  in  making  compensation  for  his  service. 
Finally,  he  is  justified,  because  in  demanding 
five  hats  or  ten  hats  he  is  demanding  no  more 
oj  me,  than  he  is  doing  for  me. 

§  3.  Thus  far  in  our  illustration  changes  in 
the  gravity  of  the  hindrance  surmounted,  and 
changes  in  exchange  value  of  the  product,  have 
kept  even  pace  each  with  the  other.  That  is  to 
say,  exactly  as  the  obstacle,  or  hindrance  sur- 
mounted, has  increased  or  decreased  in  gravity, 
so  has  the  utility  of  the  service  that  surmounts 
these  obstacles  for  us  increased  or  decreased. 


102  TRUE  NATURE  OF  VALUE 

It  should  be  noted  here,  however,  that  we  must 
be  careful  to  avoid  confusion  of  terms.  Simply 
because  these  two  things  are  related  to  each 
other  we  are  not  warranted  in  employing  them  as 
synonyms.  Indeed,  as  has  been  seen,  these 
terms  suggest  not  concurring,  but  antithetical, 
concepts  relating  to  the  same  phenomena:  the 
one  implies  increased  well-being,  the  other 
implies  an  impairment  of  well-being.  In  other 
words,  while  there  is  suggested  by  hindrance  an 
obstacle  to  well-being,  there  is  suggested  by  the 
service  an  augmentation  of  well-being  that 
re  ults  as  a  consequence  of  the  removal  of  th's 
bstacle  through  the  instrumentality  of  the 
servi:e  n  one's  behalf.  In  the  proportion  that 
the  gravity  of  the  effort  or  labor  ne  essary  to  sur- 
mount the  obstacle  is  greater  or  less,  in  the  same 
proportion  is  the  utility  of  the  service  (which, 
by  removing  the  obstacle,  renders  such  labor  by 
us  unnecessary)  greater  or  less. 

The  utility  of  the  product  supplied,  it  should 
be  repeated,  is  not  a  factor  in  determining  the 
greater  or  less  utility  of  a  service  that  overcomes 
the  hindrances  incident  to  its  production,  except 
in  so  far  as  it  may  limit  the  maximum  utility  of 
such  a  service.  That  is,  regardless  of  a  greater 
or  less  gravity  of  the  obs'  acles  to  1  e  surmounted 
in  supplying  the  product,  the  utility  of  the  serv- 


LAW  OF   EXCHANGE   VALUE  103 

ice  that  supplies  it  can  never  exceed  the  utility 
of  the  product  supplied.  Although  the  utility 
of  a  product  may  limit  what  is  termed  for  con- 
venience "the  value  of  a  product,"  the  so-called 
value  of  a  product  has  no  bearing  whatever  upon 
the  utility  of  that  product.  As  is  the  utility  of 
a  service  that  supplies  a  produc  ,  such  s  the  so- 
called  value  of  that  product. 


THE  INFLUENCE  OF  CAPITAL 


CHAPTER  X 
THE  INFLUENCE  OF   CAPITAL 

§  i.  Let  us  again  return  to  the  consideration 
of  a  community  whose  members  are  compelled 
to  rely  for  their  daily  supply  of  dr'nking-water 
upon  springs  located  at  varying  dist  nces.  It 
must  be  assumed  that  the  members  of  this  com- 
munity are  not  lacking  in  intelligence  enough 
to  determine  upon  the  desirability  of  their  loca- 
tion according  to  various  considerations  affecting 
their  needs  for  other  things  than  water.  More- 
over, it  is  inconceivable  to  suppose  that  at  any 
time  in  the  past  the  members  of  this  community 
were  so  lacking  in  intelligence  as  to  be  unable 
to  determine  from  which  spring  their  needs 
could  be  supplied  at  least  cost. 

We  will  first  assume  that  the  flow  of  water 
from  a  spring  one  mile  distant  is  adequate  for 
the  needs  of  all.  Such  a  situation  will  inevitably 
lead  to  the  creation  of  some  primary  forms  of 
capital  which  will  reduce  the  difficulty  of  ob- 
taining the  water.  For  example,  to  avoid  the 
necessity  of  a  pilgrimage  to  the  spring  each  time 
a  member  of  the  community  feels  the  pangs  of 
thirst,  the  intelligence  of  its  members  would  be 
taxed  to  devise  a  convenient  vessel  for  trans- 

107 


io8  TRUE  NATURE  OF  VALUE 

porting  the  water  in  comparatively  large  quanti- 
ties. To  meet  this  need  the  bucket,  as  one  of 
the  earliest  forms  of  capital — anything  that  aids 
labor  in  production  being  capital— has  been 
provided  as  the  most  available  and  convenient 
instrumentality  for  transporting  the  water  in 
quantities.  As  the  waters  of  this  spring,  and 
the  vessels,  or  buckets,  for  transporting  it,  are 
at  this  period  freely  available  to  all — there 
being  no  monopoly  in  their  use — each  will  be 
free  to  employ  them  in  supplying  his  daily  needs. 
Though  the  hindrance  to  be  surmounted  is  the 
same  for  all,  it  is  evident  that,  since  the  task 
incident  to  producing  a  bucket  of  water  demands 
physical  strength  and  endurance,  the  physically 
strong  will  experience  less  cost-impairment  than 
the  weak.  As  a  consequence  the  weak  will 
devote  their  energies  to  the  production  of  articles 
wherein  physical  strength  is  a  less  important 
factor — that  is,  to  the  production  of  things  in 
which  their  capacity  is  relatively  high. 

Under  ordinary  conditions  some  will  be  found 
who  are  so  poorly  endowed  in  physical  strength 
required  to  surmount  the  difficulty  of  obtaining 
water  that  the  cost  to  them  would  be  relatively 
much  higher  than  to  others.  This  fact  in  itself 
is  not  sufficient  to  insure  an  exchange  of  services, 
since  it  may  well  happen  that  relatively  low 


INFLUENCE   OF   CAPITAL  109 

capacity  in  the  production  of  the  water,  as  shown 
by  high  cost,  would  be  attended  by  equally  low 
capacity  in  the  production  of  all  other  needful 
products;  or,  conversely,  relatively  high  capa- 
city to  produce  water  might  be  attended  by 
relatively  high  capacity  in  other  directions.  It 
is  only  as  the  capacity  of  the  individual  to  sur- 
mount other  but  equivalent  hindrances  is 
relatively  superior  to  his  capacity  to  surmount 
the  hindrance  in  obtaining  the  water,  that  a 
person  can  profit  by  exchanging  the  products 
of  his  superior  capacity  in  return  for  water  on  a 
basis  of  equality  in  hindrances,  as  established 
by  free  competition.  That  is,  differences  in 
capacity  such  as  differences  in  strength  would 
not  be  taken  into  account  in  establishing  an 
equality  of  services.  In  short,  the  cause  of  the 
existence  of  an  exchange  of  goods  in  domestic, 
as  well  as  in  international  trade,  is  to  be  found 
in  the  comparative  difficulties  of  attainment,  or 
hindrances. 

§  2.  We  may  now  pass  from  the  case  of  a 
primitive  form  of  capital,  like  the  bucket,  to 
improved  forms  of  capital.  If,  by  an  exer- 
cise of  superior  productive  intelligence, 
some  member  of  the  community  succeeds  in 
devising  and  constructing  a  more  effective  in- 


no  TRUE  NATURE  OF  VALUE 

strument,  by  the  use  of  which  he  so  adds  to  the 
productivity  of  his  labor  as  to  materially  reduce 
the  cost-impairment  attendant  upon  the  pro- 
duction of  the  water,  it  is  evident  that  so  long 
as  he  retains  exclusive  control  of  a  property- 
right  in  this  labor-saving  and  cost-averting  tool, 
he  alone  can  profit  by  the  increased  capacity 
its  employment  affords.  Although  the  use  of 
this  labor-saving  device  might  so  add  to  his 
capacity  as  to  render  it  superior  to  that  of  his 
fellows  in  the  production  of  the  water,  the 
measure  of  profit  accruing  to  him  would  be 
found  in  the  degree  in  which  his  capacity  to 
produce  the  water  exceeded  his  capacity  to 
produce,  or  otherwise  secure,  other  needful 
products  on  a  basis  of  equality  of  difficulties 
of  attainment.  We  shall  postpone  for  the 
present  a  consideration  of  the  changes  in  ex- 
change values  which  will  result  when  this 
improved  tool  comes  into  general  use. 

We  will  now  assume  that  this  labor-saving 
tool  takes  the  form  of  a  barrow,  or  push-cart, 
and  that  its  employment  enables  its  user  to 
produce  two  buckets  of  water  at  the  same  cost- 
impairment  that,  without  its  aid,  would  have 
attended  the  production  of  one ;  and  in  addition 
that  he  would  set  a  return  which  would  compen- 
sate him  for  the  labor  of  producing  the  tool  and 


INFLUENCE   OF   CAPITAL  III 

keeping  it  in  repair.  Thus  it  is  that,  by  the 
employment  of  this  vehicle  as  a  means  of  adding 
to  the  effectiveness  of  his  labor  in  transporting— 
producing — water,  his  power  which,  owing  to  his 
property-right  in  the  vehicle,  now  passes  as  his 
"personal  capacity"  to  produce  it,  is  doubled. 
We  say  "that  which  passes  as  his  personal 
capacity,"  although,  as  a  matter  of  fact,  it  is 
"personal"  only  in  the  sense  that  the  capital  or 
tool  itself  is  the  product  of  his  own  brain  and 
hand.  If  that  be  the  case,  equity  demands 
not  only  a  recognition  of  his  property-right  in  it, 
but  also  of  his  right  to  the  benefits  which  its 
employment  confers  on  the  owner  and  user. 

As  a  consequence  of  the  increase  in  capacity 
arising  from  the  employment  of  this  newly 
devised  aid  to  production,  the  owner  or  user 
will  now  be  able  to  supply  two  buckets  of  water 
to  the  members  of  the  community  at  a  cost- 
impairment  that,  but  for  its  aid,  would  have 
attended  his  supplying  of  only  one.  As  a  con- 
sequence, he  will  now  gain  an  approximately 
double  profit  by  supplying  those  whose  capacity 
to  produce  a  hat,  or  its  equivalent,  is  superior 
to  their  unaided  capacity  to  produce  a  single 
bucket  of  water.  That  is,  we  are  assuming 
that,  in  this  instance,  the  producer  of  the  hat  is 
unaided  by  any  labor-saving  device,  There- 


112  TRUE  NATURE  OF  VALUE 

fore,  we  are  led  to  conclude  that  the  advantage 
conferred  by  the  invention  and  use  of  this  new 
form  of  capital  in  obtaining  water  so  increases 
his  personal  capacity  that  the  owner  is  enabled, 
through  exchanges  based  on  equality  of  difficulty 
of  attainment,  to  secure  two  hats  at  a  cost- 
impairment  heretofore  attendant  upon  securing 
one. 

§  3.  While  equity  clearly  demands  a  recogni- 
tion by  society  of  a  man's  property-right  in  the 
labor-saving  device  suggested  by  his  brain  and 
fashioned  by  his  hands,  and  consequently  also 
in  the  increased  product  and  benefits  which  its 
employment  as  an  aid  to  labor  affords,  it  does 
not  as  a  rule  confer  upon  him  a  property-right 
in  unpatentable  ideas  upon  which  its  construc- 
tion is  based.  As  men  are  constituted,  there 
are  few  who  absolutely  originate;  but  there  are 
many  who  can  copy  and  apply  a  suggestion. 
A  lower  order  of  intelligence  is  required  to 
copy,  than  to  invent.  Inasmuch  as  the  general 
idea  of  improved  transportation  would  not 
prevent  the  development  of  various  other  devices, 
it  will  be  but  a  short  time  before  many  others 
are  provided  with  similar  labor-saving  tools, 
which  also  may  be  called  tools  which  diminish 
the  difficulty  of  attainment.  Since  the  employ- 


INFLUENCE  OF   CAPITAL  113 

ment  of  this  tool  doubles  the  effectiveness  of  the 
labor  of  all  who  employ  it,  it  is  evident  that  the 
owner  thereof  may  demand  and  secure  as  interest 
a  share  in  the  increased  product  of  the  borrower 
or  renter  of  the  tool. 

We  have  seen  that,  so  long  as  the  owner  of 
the  improved  instrument  held  a  position  of 
monopoly,  he  could,  irrespective  of  his  improved 
capacity,  obtain  two  hats  for  the  cost-impair- 
ment heretofore  attendant  upon  producing  one 
bucket  of  water.  That  is,  not  until  a  sufficient 
number  of  these  instrumentalities  which  increase 
capacity,  or  reduce  difficulty  of  attainment,  are 
constructed  and  employed  to  meet  the  demands 
of  all  who  must  procure  their  water  by  the  old 
method — or  make  equitable  compensation  for 
the  service  that  supplies  it  by  that  method- 
will  free  competition  for  profit  between  the 
capitalistic  producers  compel  a  readjustment 
of  the  ratio  of  exchange  on  a  basis  of  approxi- 
mate equality  in  the  difficulties  of  attainment 
of  the  hat  and  the  water;  that  is,  on  a  basis  of 
exchange  of  a  hat,  not  for  one  but  for  two 
buckets  of  water.  We  say,  on  a  basis  of  approx- 
imate equality  in  the  difficulties  of  attainment, 
for  the  following  reason :  The  marginal  capital- 
istic producer,  who  now  supplies  the  demand 
for  two  buckets  of  water  at  a  cost-impairment 


114  TRUE  NATURE  OF  VALUE 

no  greater  than  that  which,  without  the  aid  of 
his  capital,  would  have  attended  the  production 
of  one,  has,  as  a  fact,  undergone  a  certain  cost 
in  the  construction  of  the  tool;  and  also  he  has 
undergone  further  cost  in  maintaining  its  work- 
ing efficiency,  not  to  mention  constant  deteriora- 
tion and  ultimate  replacement.  Therefore,  a 
rent,  or  interest-charge,  is  not  only  justified,  but 
necessary  to  prevent  loss.  Moreover,  if  com- 
pensation can  by  right  be  demanded  on  the 
ground  of  benefit  conferred  by  the  usefulness 
of  a  product,  a  rent,  or  interest-charge,  is  like- 
wise justifiable  on  the  ground  of  benefits  con- 
ferred by  the  tool. 

§  4.  Moreover,  it  is  patent  that  interest  is  a 
sum  obtained  through  the  increased  efficiency 
of  labor  in  connection  with  the  improved  pro- 
ductivity of  an  employed  tool ;  and  that  it  is  not 
taken  at  the  expense  of  any  form  of  labor  in  the 
community.  In  order  to  show  that  interest  is 
not  taken  from  society,  but  from  the  benefits 
which  the  employment  of  capital  confers — 
that  is,  from  that  which  it  actually  contributes 
in  the  way  of  increased  product — attention  may 
be  called  to  the  fact  that  if  the  capitalist  is 
deprived  of  his  tool,  or  forbidden  to  use  it,  the 
following  evil  results  will  ensue: 


INFLUENCE   OF   CAPITAL  115 

1.  There  will  be  an  injustice  in  depriving  him 
of  a  property-right  in  the  product  of  his  own 
efforts,  and  from  the  advantages  attendant  upon 
his  doubled  capacity,  in  the  exercise  of  which 
no  one  would  be  wronged. 

2.  The  sum  total  of  human  well-being  in 
society  would  be  diminished  by  the  amount 
which  the  effectiveness  of  his  tool  contributes  in 
overcoming  difficulty  of  attainment. 

In  a  case  of  the  exchange  of  one  hat  for  two 
buckets  of  water,  it  will  be  remembered  that 
this  result  was  brought  about  because  all  mem- 
bers of  the  community  were  at  liberty  to  possess 
and  employ  the  labor-saving  tool  which  reduces 
by  one-half  the  cost  attendant  upon  obtaining 
the  water.  Therefore,  no  one  would  question 
the  equality  in  difficulty  of  attainment  between 
one  hat  and  two  buckets  of  water;  but  all  must 
realize  that  this  marked  alteration  in  the  ex- 
change value  between  the  water  and  the  hat  is 
due,  not  to  any  reduction  or  change  in  the  objec- 
tive hindrances  of  nature  that  entered  into  the 
difficulties  of  attainment  of  these  products,  but 
solely  to  the  increase  conferred  by  the  use  of 
the  tool  in  the  individual  capacity  of  the  user, 
arising  from  the  contribution  which  it  makes  to 
the  effectiveness  of  his  labor. 

This  increase  in  individual  capacity — or  re- 


n6  TRUE  NATURE  OF  VALUE 

duction  in  difficulty  of  attainment — due  to  the 
employment  of  capital  which,  by  doubling  the 
effectiveness  of  labor,  reduces  cost,  places  those 
who  are  not  provided  with  this  instrumentality 
at  such  great  disadvantage  that  they  are  quickly 
driven  from  the  field  where  there  is  open  com- 
petition. Since  each  member  of  the  community 
has  equal  opportunity  to  create  and  possess  the 
improved  tools,  the  possession  of  capital  by  the 
enterprising  member  of  society  does  no  injustice 
to  anyone  else.  If  the  possessor  of  capital 
drives  the  non-possessor  of  capital  out  of  the 
field,  it  is  due  not  to  any  impairment  of  the 
capacity  of  others,  not  to  any  infringement  upon 
their  rights.  On  the  contrary,  it  is  unmistak- 
ably clear  that  there  has  been  secured  a  material 
advance  in  the  well-being  of  society  as  a  whole. 
Hence  a  compulsory  return  to  the  old  method 
would  indicate  such  a  backward  step  as  should 
incite  indignant  protest  from  every  intelligent 
member  of  society. 

§  5.  Some  further  points  may  be  added  here 
in  explanation  of  our  general  thesis.  Although 
capital  is  primarily  treated  as  an  aid  to  labor 
in  production,  yet,  whenever,  through  free  com- 
petition in  the  open  market,  the  full  measure 
of  the  demand  for  a  product  is  supplied  by  the 


INFLUENCE  OF   CAPITAL  117 

more  effective  means,  the  difficulty  of  attainment 
itself  is  regarded  as  having  been  reduced.  This 
arises  from  the  following  analysis:  Since  cost- 
impairment  is  the  final  test  of  the  difficulty 
of  attainment  to  be  surmounted;  and,  since 
the  necessary  cost  has  been  reduced  by  the 
employment  of  capital,  the  highest  difficulty 
of  attainment  necessary  to  be  overcome  in 
order  to  furnish  the  required  supply  is  reduced 
proportionately. 

It  may  be,  however,  that  those  who  have 
the  improved  instruments  may  not  be  able 
to  supply  the  full  market  demand;  in  such  a 
case,  the  owners  of  the  capital  occupy  a  position 
of  monopoly.  So  long  as  the  services  of  some 
who  are  unable  to  secure  the  improved  tool  must 
continue  to  produce  the  water  by  the  old  method, 
the  old  ratio  of  one  hat  for  each  bucket  of  water 
must  prevail  as  the  ratio  of  exchange  on  a  basis 
of  equality  in  difficulty  of  attainment.  And  so 
long  as  this  prevails,  those  possessing  and  em- 
ploying the  improved  tool  will  make  a  double 
profit — less  the  expense  of  maintenance,  or 
interest,  if  the  tool  is  hired  for  the  purpose. 
This,  again,  gives  confirmation  to  the  trade 
axiom,  that  there  cannot  at  any  given  time  be 
two  prices  in  the  market  for  any  given  thing; 
and  that  the  highest  competitive  price  will  be 


Ii8  TRUE  NATURE  OF  VALUE 

the  prevailing  price.  Under  such  conditions 
it  is  evident  that  those  who,  by  the  employment 
of  capital  as  an  aid  to  labor,  reduce  the  cost  one- 
half,  will  obtain  a  double  profit.  They  will 
obtain  this  profit,  however,  not  at  the  expense  of 
others,  but  simply  and  solely  by  reason  of  the 
double  capacity  conferred  by  an  improvement  in 
the  methods  employed  by  them  to  surmount 
the  objective  hindrances  required  in  the  pro- 
duction of  the  water. 

Thus  it  is  that  every  improvement  in  method, 
or  in  effectiveness  of  the  instrumentalities  em- 
ployed— as  measured  by  reduction  in  cost — will 
for  a  period  give  large  profits  to  those  employing 
them;  but  freedom  to  construct,  or  otherwise 
acquire  the  tool,  or  to  resort  to  improved 
methods,  will  inevitably  tend  to  a  restoration  of 
equality  in  the  difficulties  of  attainment  sur- 
mounted as  a  basis  for  exchanges  in  the  open 
market.  Improvement  in  method  implies  a  net 
advance  in  the  well-being  of  society.  It  means 
more  products  without  increased  cost,  or  the 
same  products  at  less  cost.  Is  this  net  result,  or 
augmentation  in  the  well-being  of  society,  as- 
signable to  a  reduction  in  difficulty  of  attainment, 
or  in  cost?  Obviously  the  former;  because 
personal  capacity  in  overcoming  the  difficulty 
of  attainment  has  increased,  and  cost-impair- 


INFLUENCE   OF   CAPITAL  IIQ 

ment  has  been  lowered,  due  to  a  reduction  in 
the  difficulties  of  attainment. 

In  this  way,  the  productive  capacity  of  the 
community  is,  as  a  whole,  raised  to  a  higher 
level.  This  is  the  outcome  of  the  productive 
intelligence  and  inventive  genius  of  man.  To 
stimulate  and  promote  this  inventive  genius, 
patents  are  in  some  instances  granted,  protect- 
ing inventors*  for  a  period  of  years  in  the  exclu- 
sive right  to  the  production  or  use  of  the  im- 
provements suggested  by  their  intelligence.  As 
a  consequence  of  this  policy,  every  American 
from  the  highest  to  the  lowest,  is  on  the  alert  to 
discover  some  improvement  in  tools  or  methods 
which,  by  adding  to  the  productivity  of  labor, 
would  diminish  the  difficulty  of  attainment,  and, 
by  reducing  cost-impairment,  afford  an  in- 
creased profit. 

Moreover,  to  continue  our  illustration,  it  is 
more  than  probable  that  the  constant  activity 
of  the  human  mind  will  lead  some  one  to  im- 
prove upon  the  push-cart  which  represented 
the  past  level  of  productive  capital.  This  new 
improvement  will  further  reduce  the  hindrances 
to  be  overcome,  and  consequently  the  market 
ratio  of  the  water ;  or,  what  amounts  to  the  same 
thing,  will  so  increase  the  productive  capacity 
of  those  employing  the  latest  improvement,  as  to 


120  TRUE  NATURE  OF  VALUE 

reduce  the  cost-impairment  in  obtaining  the 
bucket  of  water.  As  a  consequence,  there  will 
be  a  further  readjustment  in  the  market  in  order 
to  secure  an  equitable  ratio  of  exchange  cor- 
responding to  the  changes  in  the  difficulty  of 
obtaining  the  water,  or  in  the  improved  methods 
of  surmounting  this  difficulty,  and  the  difficulty 
of  obtaining  the  hat,  or  its  equivalent.  Thus, 
for  example,  the  push-cart  may  be  superseded 
by  a  vehicle  of  greater  capacity,  and  the  ox  or 
horse  may  take  the  place  of  the  man  as  motive 
power.  As  a  consequence,  not  two,  but  5  or  10 
or  20  buckets  of  water  may  now  be  produced 
and  supplied  at  a  cost-impairment  to  the  pro- 
ducer even  less  than  that  originally  attendant 
upon  the  production  of  one.  The  cost-impair- 
ment attendant  upon  providing  this  instrumen- 
tality is  measured  by  the  cost  of  producing  and 
maintaining  it  in  a  state  of  maximum  efficiency. 
That  is  to  say,  it  is  measured  by  the  cost  of 
building  the  cart,  and  of  securing,  training,  and 
keeping  the  ox  in  good  condition,  with  ultimate 
replacement  taken  for  granted. 

That  the  profit  accruing  to  the  user  would, 
for  the  time  in  which  he  enjoyed  a  monopolistic 
position,  be  increased  in  proportion  as  the  capa- 
city of  the  producer  is  increased,  is  apparent. 
That  his  profit  would  in  no  degree  impair  the 


INFLUENCE   OF   CAPITAL  121 

well-being  of  others  is  equally  apparent.  The 
old  ratio  of  exchange  would  prevail  until  those 
in  possession  of  the  latest  method  were  able  to 
more  than  supply  the  demand  at  the  old  ratio 
of  two  buckets  of  water  for  one  hat;  when  this 
point  is  reached,  the  exchange  ratio  between  the 
water  and  the  hat  would  conform  to  this  reduced 
difficulty  of  attainment,  as  measured  by  the 
reduced  cost.  That  this  latest  and  best  form 
of  capital  would  enable  its  possessors  to  drive 
producers  by  the  older  methods  out  of  the  field 
is  clear.  Although  those  driven  out  must  regard 
it  as  a  hardship,  society  as  a  whole  is  a  gainer, 
and  to  the  extent  of  the  net  product  of  the  labor 
of  those  displaced. 


RENT 


CHAPTER  XI 
RENT 

§  i.  Hitherto  we  have  assumed  that  the  mem- 
bers of  the  community  have  been  able  to  obtain 
their  whole  supply  of  drinking-water  from  one 
source  situated  one  mile  distant;  that  is,  all  the 
supply  has  been  brought  from  the  nearest 'and 
most  available  spring.  We  will  now  assume 
that,  owing  to  an  increase  of  population,  the 
demand  for  drinking-water  has  outrun  the 
supply  that  can  be  secured  from  the  spring  one 
mile  distant.  As  a  consequence,  it  now  becomes 
necessary  to  draw  some  portion  of  the  supply 
from  the  next  most  available  spring,  which  is 
two  miles  distant.  Under  such  conditions  we 
shall  have  an  actual  doubling  of  the  hindrance 
to  be  surmounted  in  supplying  certain  members 
of  this  community  with  their  daily  supply  of 
drinking-water.  That  is  to  say,  from  this  time 
on  some  will  be  compelled  to  go,  not  one,  but 
two,  miles  for  their  water  supply;  or,  what 
amounts  to  substantially  the  same  thing,  make 
double  compensation  for  the  service  that  sup- 
plies it. 

It  is  true  that  the  difficulty  of  attainment  to 
those  who  are  still  able  to  secure  their  supply 

125 


126  TRUE  NATURE  OF  VALUE 

from  the  spring  one  mile  distant  would  be 
unchanged.  For  those  only  who  are  compelled 
to  provide  themselves  with  water  from  the 
spring  two  miles  distant  would  the  hindrance 
be  doubled.  As  a  consequence,  all  would  seek 
to  supply  their  needs  from  the  least  distant 
spring.  This  being  impossible,  under  the  sup- 
position, it  is  evident  that,  in  the  absence  of  any 
recognized  rule  of  guidance,  the  "strong  arm" 
and  "big  stick"  would  be  laws  unto  themselves. 
The  weak  would  be  crowded  out,  the  strong 
would  impose  upon  them  even  harsher  condi- 
tions than  they  themselves  had  to  contend  with . 

§  2.  Since  this  resort  to  force  must  of  necessity 
lead  to  that  endless  strife  and  bloodshed  which 
we  recognize  as  anarchy,  society  is  compelled  to 
formulate  rules  and  regulations  for  the  protec- 
tion, not  of  the  strong,  who  can  protect  them- 
selves, but  of  the  weak.  One  very  simple  rule  for 
governing  the  conduct  of  the  members  of  this 
primitive  community,  under  the  conditions 
assumed,  would  be  that  of  priority,  or  "first 
come,  first  served."  This  rule,  by  the  way,  is 
frequently  resorted  to  in  an  emergency  of  this 
sort,  even  to  the  present  day.  Its  chief  recom- 
mendation lies  in  the  fact  that  it  seems  to  be  as 
fair  for  one  as  for  another.  Under  this  method, 


RENT  127 

each  member  of  a  group  desiring  to  secure  a 
bucket  of  water  from  the  nearest  spring,  will, 
upon  arrival,  take  his  proper  place  at  the  end 
of  the  waiting-line  of  would-be  producers.  It 
goes  without  saying  that  in  a  comparatively 
short  time  the  line  would  be  so  extended  that  the 
last  producers  would  be  compelled  to  wait  so 
long  for  their  proper  turn,  that  it  would  be  a 
saving  of  time  for  them  to  continue  their  journey 
to  the  spring  one  mile  farther  on,  where  without 
delay  they  might  secure  the  desired  bucket  of 
water.  We  are  thus  brought  to  see  that  the 
element  of  time  forms  an  important  factor  in 
cost-impairment. 

While,  as  a  rule,  time  is  a  seemingly  less  impor- 
tant factor  than  labor,  in  the  productive  capacity 
of  the  individual,  the  fact  that  it  is  no  less  arbi- 
trarily and  irrevocably  limited  than  intelligence, 
physical  strength,  or  opportunity  itself,  renders 
it  apparent  that  under  by  no  means  unusual 
conditions  it  is  a  factor  of  vital  importance  in 
the  cost  attendant  upon  production.  Attention 
is  called  to  the  fact,  that,  considered  as  an  indirect 
result,  time  is  a  no  less  important  factor  in  cost- 
impairment  than  fatigue.  Even  when  no  physi- 
cal exertion  is  involved,  the  irksomeness  of 
waiting  not  infrequently  occasions  cost-impair- 
ment. Indirect  cost  results  from  inability  to 


128  TRUE  NATURE  OF  VALUE 

promote  well-being  through  lack  of  time  for 
surmounting  hindrances,  or  lack  of  time  to 
recuperate  strength.  As  a  consequence,  it  will 
inevitably  result  sooner  or  later  that  the  cost- 
impairment  attendant  upon  "waiting,"  con- 
sidered as  an  indirect,  no  less  than  as  a  direct, 
outcome,  will  exceed  that  imposed  by  sur- 
mounting a  difficulty  of  attainment  which  is 
twofold  greater. 

When  this  point  is  reached,  the  difficulty  of 
attainment  of  the  hat  remaining  constant,  the 
equitable  compensation  for  a  service  that  sup- 
plies a  bucket  of  water,  regardless  of  the  spring 
from  which  it  is  procured,  or  "produced," 
would  be,  not  one,  but  two  hats.  This  is  but 
one  of  the  many  confirmations  of  the  established 
rule  that  there  cannot  at  one  and  the  same  time 
be  two  prices  in  the  same  market  for  the  same 
thing.  Moreover,  in  this  connection  the  im- 
portant fact  to  be  kept  in  mind  is  that  the  in- 
evitable result  of  the  adoption  of  this  primitive, 
but  measurably  equitable,  rule  of  "first  come, 
first  served,"  would  in  time  be  to  establish  sub- 
stantial equivalence  in  the  hindrances  to  be 
surmounted,  regardless  of  the  two  sources  of 
supply. 

§  3.  In  the  absence  of  an  equitable  rule  for 


RENT  129 

the  government  of  economic  activity,  still 
another  means  of  establishing  justice  and  of 
avoiding  anarchy  might  be  found  in  a  regulation 
that  provided  for  a  payment  into  the  public 
treasury,  for  the  benefit  of  society  as  a  whole, 
of  one  hat  or  its  equivalent  for  the  privilege  of 
procuring  water  from  the  spring  one  mile  distant, 
while  leavnig  the  opportunity  afforded  by  the 
second  most  available  spring  untaxed,  or  free 
to  all.  The  result  would  be  such  an  equalizing 
of  conditions  that  no  one  would  have  an  advant- 
age over  the  other  in  the  gravity  of  the  hin- 
drances they  must  surmount  in  order  to  produce 
a  bucket  of  water.  Of  course,  while  those  who 
now  produce  from  the  near-by  spring  would  have 
a  difficulty  of  attainment  to  surmount  only  one- 
half  as  great  as  those  who  produce  from  a 
spring  twice  the  distance,  the  fact  that  they 
would  be  compelled  to  submit  to  a  tax  of  one 
hat  for  the  privilege  would  exactly  offset  the 
advantage  gained. 

Since  this  tax  of  one  hat  laid  upon  all  who 
procure  a  bucket  of  water  from  the  spring  where 
the  difficulty  of  attainment  is  lowest  would  go 
to  swell  the  public  revenue,  which  would  be 
expended  only  for  the  well-being  of  all,  it  is 
evident  that  the  payment  for  the  advantages  of 
opportunity,  which  is  usually  designated  "rent," 


130  TRUE  NATURE  OF  VALUE 

should  be  properly  diffused  for  the  well-being  of 
all.  This  method  of  taxation,  of  course,  assumes 
as  a  condition,  the  public  ownership  of  such 
landed  opportunities  as  the  spring. 

We  are  thus  brought  to  see  the  peg  upon  which 
Henry  George  hung  his  theory  of  taxation.  To 
obviate  or  nullify  the  apparent  injustice  to 
society  arising  from  a  recognition  of  a  private 
property-right  to  the  land  and  its  products, 
Henry  George  would  impose  upon  the  owner  a 
tax — to  be  disbursed  for  the  benefit  of  all- 
equal  to  the  superior  advantages  which  this 
right  affords,  when  compared  with  the  advan- 
tages possessed  by,  or  available  to,  those  whose 
opportunity  to  produce  is  least.  Though  the 
difficulties  attendant  upon  pursuing  the  plan 
which  he  has  recommended  would  be  great, 
this  fact  has  no  bearing  upon  the  justice  or  in- 
justice of  the  proposed  solution.  While  his 
suggestion,  however,  seems  far  from  inequitable, 
it  does  not  seem  to  have  commended  itself  to  the 
judgment  of  conservative  economic  students  of 
the  present  day.  There  is  a  question,  however, 
—which  may  be  interjected  here — whether  it  is 
just  to  allow  a  railway  corporation  absolute  con- 
trol over  anthracite  coal  deposits. 

§  4.  Still  another  method  might  be  resorted 


RENT  131 

to  in  order  to  avoid  the  anarchy  that,  in  the 
absence  of  a  rule  designed  to  harmonize  con- 
flicting interests,  must  otherwise  prevail.  The 
establishment  of  order  might  be  secured  by 
granting  to  some  great  warrior,  statesman,  or 
ruler,  as  a  reward  for  his  exceeding  valor,  or 
wisdom,  which  had  saved  the  community  from 
overwhelming  disaster,  the  exclusive  right  of 
control  over  the  waters  of  the  nearest  spring. 
That  is  to  say,  a  property-right  in  the  spring, 
or  its  waters,  might  be  granted  him.  This 
property-right  in  a  superior  opportunity,  would, 
from  this  time  on,  be  accounted  a  factor  in  his 
personal  capacity,  to  be  employed  as  a  source 
of  equitable  profit,  should  he  choose  so  to  make 
use  of  it. 

Since  but  a  small  portion  of  the  water  from 
this  spring  would  be  required  to  minister  to  his 
personal  needs,  it  is  evident  that  he  would  seek 
to  dispose  of  the  surplus  to  the  best  advantage. 
Quick  to  recognize  the  fact  that  the  obstacles 
to  be  surmounted  in  producing  the  water  from 
the  nearest  and  most  available  spring  would  be 
doubled,  he  would  not  be  slow  to  increase  his 
profit  by  adding  one  hat  to  the  charge  which  all 
must  pay  who  secure  their  supply  from  this 
source.  In  other  words,  his  property-right  in 
superior  opportunities,  or  advantages,  would 


132  TRUE  NATURE  OF  VALUE 

enable  him  to  collect  a  royalty,  or  "rental," 
of  approximately  one  hat  from  all  who  now  make 
use  of  it. 

Granting  the  basis  of  his  right  to  possession, 
he  would  apparently  have  no  difficulty  in  justi- 
fying his  course,  by  the  argument  that,  under 
the  admittedly  equitable  rule  of  "first  come,  first 
served,"  the  market  equivalent  of  one  bucket 
of  water  would,  through  free  competition  in  the 
open  market,  have  been  established  as  that  of 
two  hats.  And  he  might  claim  that,  notwith- 
standing the  rental  collected  by  him,  the  same 
ratio  still  prevailed.  Hence  he  could  urge  that 
rent  was  not  a  sum  drawn  from  labor  or  from 
the  wages  of  labor,  or,  for  that  matter,  from 
society.  • 

§  5.  Another  method  of  preventing  anarchy 
might  be  followed  by  establishing  a  rule,  or 
custom,  under  which  each  member  of  society 
could  on  proper  application  secure  an  allotment 
of  land,  under  the  principle  of  "first  come,  first 
served,"  in  the  products  from  which  allotment 
he  should  have  a  property-right.  Under  such  a 
system  we  may  assume  that  C,  being  the  first 
to  apply,  would  be  granted  a  property-right  in 
that  particular  piece  or  parcel  of  land  upon 
which  the  most  available  spring  is  situated. 


RENT 133 

Having  a  property-right  in  the  land,  he  would 
also  have  a  property-right  in  each  bucket  of 
water  secured  from  his  spring.  Consequently 
C  would  be  in  a  position  to  exact  a  tribute  or 
rental  of,  say,  one  hat  for  each  bucket  of  water 
secured  by  others  from  his  spring. 

Without  stopping  to  discuss  the  advantages 
or  disadvantages  to  society  attendant  upon  the 
recognition  of  a  property-right  in  land,  I  wish  to 
call  especial  attention  to  the  fact  that,  as  soon 
as  any  material  portion  of  the  water  actually 
needed  by  society  must  be  secured  from  a  source 
where  the  difficulty  of  obtainment  is  greater  than 
before,  a  change  in  the  market  ratio  between 
water  and  other  products  must  inevitably  result. 
Under  these  conditions  the  ratio  will  be  changed 
to  correspond  with  the  highest  difficulty  of  attain- 
ment that  must  be  surmounted  in  order  to  supply 
the  whole  demand.  The  difficulty  of  attainment 
which  is  dominant  in  regulating  exchange  value 
in  the  market  is  the  highest  difficulty  of  attain- 
ment which  it  is  necessary  to  surmount  in 
order  to  minister  to  the  existing  demand;  that 
is,  the  demand  of  those  who  can  pay  the  price 
with  profit. 

We  may  now  go  one  step  farther  in  our  illus- 
tration and  assume  that  the  individual,  or  group 
of  individuals,  has  secured  a  property  right  in 


134  TRUE  NATURE  OF  VALUE 

all  the  sources  of  supply  of  drinking-water  with- 
in a  radius  of  say  five  miles  from  the  settlement. 
The  individual,  or  the  group  of  individuals  who 
have  combined  their  interests,  would  have  it  in 
their  power  to  demand  compensation  for  their 
service  in  supplying  each  bucket  of  water,  on  a 
basis  of  the  difficulty  of  attainment  which  others 
must  surmount  in  order  to  produce  it  from  the 
most  available  spring  not  yet  controlled  by  the 
monopoly,  which  is  over  five  miles  distant.  In 
such  a  case  they  might  stipulate  that  the  price 
demanded  might  be  five  hats  for  each  bucket 
of  water. 

In  this  case,  of  course,  we  have  presented  to 
us  the  operation  of  a  monopoly.  On  the  one 
hand,  the  monopolistic  possessors  might  contend 
with  perfect  truth,  that  no  one  is  compelled  to 
pay  their  price,  since  all  are  at  liberty  to  produce 
their  own  supply  by  their  own  efforts ;  and  they 
might  point  out  that  there  is  an  abundance  of 
pure  water  in  the  spring  six  miles  distant.  On 
the  other  hand,  society  would  obviously  rebel 
against  the  injustice  which  permits  the  monopo- 
lists of  more  advantageous  sources  of  supply, 
under  their  property-right,  to  impose  onerous  con- 
ditions of  exchange.  They  may,  however,  hesi- 
tate long  before  interfering  with  the  sacredness  of 
property-rights  upon  which  modern  society  rests. 


RENT 135 

§  6.  The  relations  of  rent  to  hindrance  may 
now  be  more  fully  explained  by  discussing  the 
way  in  which  improvements  operate.  The  very 
fact  of  the  existence  of  the  group,  or  individual, 
who  monopolizes  the  supply,  will  set  others  to 
devising  means  of  obtaining  the  water  at  less 
cost.  Let  us  now  assume  that  some  member  of 
society,  more  highly  endowed  with  productive 
intelligence  than  his  fellows,  conceives  the  idea 
of  so  improving  the  method  of  transporting  the 
water  as  to  reduce  the  consequent  cost  attendant 
thereon  to  a  minimum  hitherto  unknown. 

It  is  the  purpose  of  the  new  inventor  to  lay, 
to  the  very  heart  of  the  settlement  that  is  to  be 
supplied,  a  pipe-line  from  a  spring  situated  high 
on  the  hillside  six  miles  distant,  which  provides 
an  almost  inexhaustible  supply  of  the  purest 
water.  Indeed,  his  plan  even  goes  so  far  as  to 
pipe  the  water  to  every  house  in  the  community. 
We  will  suppose  that  the  owner  of  the  pipe-line 
agrees  to  supply  the  water  on  a  basis  of  one  hat 
for  each  bucket  of  water,  in  return  for  the 
exclusive  right  to  supply  water  by  this  means 
for  a  term  of  years.  In  addition  to  this,  it  is 
assumed  that  he  has  secured  the  right  of  way 
across  private  property  on  condition  that  he 
make  suitable  compensation  for  any  damage 
to  the  property  that  may  result  from  the  use  of 


136  TRUE  NATURE  OF  VALUE 

this  right.  Believing  that  this  compensation 
for  the  service  will  be  ample  to  him,  he  proceeds, 
after  the  agreement  is  made,  in  conjunction 
with  the  aid  of  others,  to  instal  his  plant.  Since 
the  source  of  supply  occupies  higher  ground 
than  the  dwellings  of  the  community,  of  course 
no  artificial  means  of  propulsion  are  required  to 
deliver  it  to  each  dwelling. 

An  arrangement  of  this  sort  would  commend 
itself  to  the  judgment  of  the  representatives  of 
this  community,  who  have  authority  to  pursue 
any  course  promising  the  greatest  good  to  the 
greatest  number.  They  would  justify  their 
entering  into  the  agreement  on  the  ground  that 
by  its  acceptance  the  well-being  of  the  commun- 
ity as  a  whole  would  be  greatly  improved. 
Although  the  individual  or  group  wrhich,  through 
monopoly,  had  heretofore  been  reaping  an 
inequitable  profit,  would  be  injured;  yet  the 
well-being  of  the  many  is  of  more  importance 
than  the  well-being  of  the  few,  especially  if  the 
few  have  been  gaining  at  the  expense  of  the 
many.  Hence  their  justification  would  be 
complete. 

If  the  expense  of  installation  has  not  exceeded 
the  estimates  made  by  the  owner  of  the  pipe- 
line, the  return  secured  by  the  charge  of  one  hat 
for  each  bucket  of  water  will  be  ample  to  com- 


RENT  137 

pensate  him  for  the  use  of  borrowed  capital— 
another  form  of  cost — properly  to  maintain  the 
plant's  efficiency  for  the  work  it  has  to  do;  to 
meet  his  pay-roll  for  labor;  and  still  leave  him 
a  good  margin  of  profit  for  the  service  he  renders. 
Indeed,  he  may  find  that  his  profit  is  excessive. 
If,  however,  he  has  an  exclusive  right,  competi- 
tion by  others  who  wish  to  share  in  his  excessive 
profit  is  prevented;  while  if  he  has  a  right  for 
only  a  limited  number  of  years,  he  may,  until 
that  period  expires,  secure  the  full  measure  of 
profit  due  to  his  intelligence  in  devising  a  suc- 
cessful method  of  reducing  the  cost  of  obtaining 
water. 

On  the  other  hand,  if  his  right  is  secured  to 
him  only  by  the  exclusive  control  over  the  in- 
strumentality he  employs,  such  as  a  patent  on 
the  pipe-line,  some  one  else  may  supplant  him, 
if  that  person  can  devise  some  other  instrumen- 
tality for  transporting  water  which  is  cheaper. 
Or,  again,  if  the  owner  of  the  pipe-line  has  no 
control  for  a  term  of  years,  and  if  he  is  dependent 
solely  upon  the  property-right  in  his  spring, 
which  is  his  source  of  supply,  then  some  one 
may  supplant  him  at  a  moment's  notice,  provided 
that  other  can  obtain  water  from  other  sources. 
Or,  again,  if  a  higher  order  of  intelligence  should 
point  out  that  by  means  of  an  artesian  well  an 


138  TRUE  NATURE  OF  VALUE 

abundant  supply  of  water  at  high  pressure  can 
be  provided  at  a  less  cost  than  that  charged 
by  the  pipe-line,  this  other  method  of  securing 
the  supply  may  be  resorted  to  in  the  competitive 
field.  Or,  finally,  even  the  community  as  a 
whole  might  unite  to  instal  a  public  utility,  if 
the  device  for  transporting  the  water  were 
matter  of  common  knowledge.  In  such  a  case, 
society  itself  might  take  this  improvement  in 
hand  and  by  a  general  tax  secure  the  capital 
necessary  to  instal  the  system;  or,  since  the 
improvement  would  be  permanent,  perhaps 
long-time  bonds  might  be  issued  to  secure  the 
capital  and  thus  throw  a  portion  of  the  expense 
justly  upon  future  generations. 


MONEY 


CHAPTER  XII 
MONEY 

§  i.  It  has  been  already  fully  explained  that 
the  gravity  of  the  hindrance  which  it  is  neces- 
sary to  surmount  in  obtaining  an  article 
determines  the  utility  of  the  service  that 
supplies  it;  and  that  the  utility  of  the 
service  is  no  more  or  less  than  an  averting 
of  the  cost-impairment  incident  to  surmounting 
this  hindrance.  Hence,  if  it  is  our  purpose  to 
arrive  at  a  unit  of  value,  it  would  be  desirable 
to  examine  whether  we  can  obtain  a  unit  based 
on  objective  hindrances.  Without  such  a  unit 
there  would  be  obvious  inconvenience.  If  we 
were  to  try  to  ascertain  the  relation  which  the 
hindrance  to  be  surmounted  in  the  acquisition 
of  each  one  of  a  hundred  different  products 
bears  to  that  of  all  the  others,  it  would  involve 
the  determination  of  an  enormous  number  of 
separate  and  distinct  ratios.  It  is  evident, 
therefore,  that  the  task  attendant  upon  deter- 
mining the  ratios  between  the  hindrance  not  of  a 
hundred,  but  of  thousands  of  products,  would 
be  incalculable. 

It  is  to  be  observed,  also,  that  these  difficulties 
would  be  enormously  aggravated  by  frequent 

141 


142  TRUE  NATURE  OF  VALUE 

changes  in  conditions  of  environment,  and  by 
the  introduction  of  more  effective  capital, 
either  of  which  might  operate  to  effect  changes 
in  the  relative  gravities  of  hindrances,  and  con- 
sequently in  the  ratios  of  exchange  between  the 
products  that  result  from  surmounting  these  hin- 
drances. Consequently,  each  and  every  change 
in  the  difficulty  of  attainment  would  result  in  a 
change  in  the  ratio  of  exchange  between  them. 
For  this  reason,  the  ratios  of  yesterday  are  not  the 
ratios  of  today;  nor  will  the  ratios  of  today  be 
those  of  tomorrow;  and,  if  the  exchanges  are  to 
be  made  upon  an  equitable  basis  of  equivalence 
of  hindrances  surmounted,  there  would  be  an 
incessant  demand  for  an  intelligent  revision  of 
all  these  ratios — a  demand  which  it  would  be 
almost  impossible  to  meet.  But  these  incon- 
veniences are  not  all.  Besides  the  shifting 
ratios  of  exchange  due  to  a  multiplicity  of  hin- 
drances, should  be  added  those  arising  from  wide 
differences  in  the  character  or  nature  of  those 
hindrances.  So  widely  different  are  these  that 
it  is  often  difficult  to  find  any  common  ground 
for  comparison  between  them.  The  imperative 
need  of  some  means  for  removing  these  difficul- 
ties is  too  apparent  to  need  emphasis. 

The  most  practical,  although  by  no  means  a 
perfect,  relief  from  the  difficulties  here  encoun- 


MONEY  143 

tered,  is  to  be  found  in  the  selection  and  general 
acceptance  of  some  specific,  but  typical  and 
hypothetically  constant,  hindrance  with  the 
gravity  of  which  all,  through  experience,  obser- 
vation, or  the  testimony  of  others,  may  become 
sufficiently  familiar  to  enable  them  to  compre- 
hend its  significance  when  employed  as  a  unit 
or  standard  of  greater  or  less  difficulty  of 
attainment. 

The  relation  of  this  unit  to  the  exposition 
which  has  gone  before  is  evident.  As  is  the 
gravity  of  the  obstacles  or  hindrances  encoun- 
tered in  the  production  of  a  product,  such  is  the 
utility  of  a  service  which,  by  surmounting  them, 
supplies  it.  This  being  true,  it  follows  that  a 
condition  precedent  to  an  intelligent  conclusion 
relative  to  the  utility  of  the  service  that  supplies 
the  product,  is  a  clear  conception  of  the  gravity 
of  the  hindrances  it  is  necessary  to  surmount. 
That  is  to  say,  there  can  be  no  intelligible 
measure  of  the  utility  of  a  service — that  which 
one  does  for  another — other  than  that  found  in 
the  greater  or  less  gravity  of  the  hindrances  it  has 
been  necessary  by  this  service  to  surmount  in 
order  to  supply  the  product. 

§  2.  In  the  minds  of  most  people  a  unit  which 
measures  the  greater  or  less  hindrance,  and  the 


144  TRUE  NATURE  OF  VALUE 

unit  which  measures  the  value  of  the  product, 
resulting  from  this  effort,  are  usually  inseparably 
associated.  So  close  is  this  association  between 
the  tangible  task  of  surmounting  it,  and  the 
product  itself,  that  the  product  quickly  becomes 
the  accepted  symbol  of  the  difficulty  of  attain- 
ment, in  terms,  ratios,  or  multiples  of  which 
other  difficulties  of  attainment  of  every  sort  may 
be  expressed.  That  is  to  say,  the  popular  mind 
incorrectly  and  unconsciously  carries  over  tc 
the  product,  and  ascribes  to  it,  as  an  attribute, 
the  qualities  of  usefulness  that  in  fact  attach  only 
to  the  services  that  are  necessary  for  overcoming 
the  hindrances  incident  to  its  production.  As 
soon  as  we  can  conceive  of  a  typical  and  theoreti- 
cally constant  hindrance — or  the  product  that 
through  association  suggests  this  -hindrance— 
we  shall  secure  an  accepted  unit,  or  standard,  in 
terms  of  which  the  gravity  of  any  given  difficulty 
of  attainment  may  be  expressed.  This  standard 
will  serve  as  a  common  denominator,  thereby 
facilitating  intelligent  comparison  between  dif 
ficulties  of  attainment  having  so  little  in  common 
as  to  render  direct  comparison  between  them 
difficult,  if  not  impossible. 

Thus,  if  the  hindrance  attendant  upon  the 
production  of  X  becomes  the  accepted  unit 
for  the  measurement  and  comparison  of  quanti- 


MONEY  145 

tative  hindrances,  and  if  we  find  that  the  diffi- 
culty of  attainment  of  Y  is  the  quantitative 
equivalent  of  the  difficulty  of  attainment  of  X, 
we  unhesitatingly  express  this  idea  by  saying, 
"Y  equals  X,"  or,  conversely,  "X  equals  Y," 
although,  as  a  matter  of  fact,  there  is  absolutely 
nothing  in  common  between  the  properties  of 
these  two  products.  While  the  character  of 
the  typical  hindrance  employed  as  a  unit  of 
this  sort  is  seemingly  of  little  importance,  it  is 
evident  that  to  be  sufficiently  familiar  to  be 
intelligible  to  all,  it  should  suggest  such  specific 
and  theoretically  constant  difficulties  of  attain- 
ment as  would  attend  the  production  of  a  given 
product  under  practically  changeless  conditions 
of  environment. 

§  3.  It  is  customary  to  regard  the  employment 
of  a  unit  of  this  sort  as  conclusive  evidence  of 
considerable  advancement  in  economic  enlight- 
enment; and  doubtless  the  more  highly  devel- 
oped the  society,  the  more  perfectly  adapted 
to  its  purpose  will  be  the  specific  product  whose 
difficulty  of  attainment  is  employed  as  a  unit. 
Nevertheless,  so  essential  is  this  unit  to  an  in- 
telligent division  of  labor  upon  an  equitable 
basis  that  is  it  difficult  to  conceive  of  a  self- 
sustaining  group,  however  insignificant  numer- 


146  TRUE  NATURE  OF  VALUE 

ically,  that  would  not  instinctively  resort  to  the 
employment  of  some  familiar,  but  typical,  unit 
of  difficulty  of  attainment,  in  terms  of  which  the 
gravity  of  other  and  less  familiar  hindrances 
might  be  expressed,  and  by  means  of  which 
quantitative  comparisons  between  them  might 
be  made. 

This  operation  might  be  illustrated  from  the 
instances  hitherto  employed.  For  example,  it 
might  be  supposed  that  every  member  of  a 
community  is  compelled  to  secure  his  daily 
supply  of  one  bucket  of  water  from  a  spring  one 
mile  distant,  and  that  the  average  weight  of  his 
burden  is,  say,  twenty  pounds.  The  hindrance 
to  be  surmounted  in  producing  this  water  in- 
volves a  walk  of  one  mile  and  return,  bearing  the 
above-mentioned  burden.  This  hindrance  in- 
cludes the  qualities  necessary  to  render  it  an 
acceptable  standard  of  other  difficulties  of  attain- 
ment. Two  of  these  qualities  it  would  have  in  a 
high  degree,  namely,  invariability  and  familiarity. 
These  alone  would  render  it  acceptable  as  a 
standard,  or  common  denominator,  in  terms  of 
which  the  gravities  of  all  other  hindrances 
might  be  expressed,  and  the  ratios  between  them 
intelligently  determined.  Clearly,  it  is  a  matter 
of  little  importance  what  specific  hindrance  is 
selected  as  a  standard  in  which  concepts  of 


MONEY  147 

hindrances  are  expressed,  so  long  as  that  hin- 
drance, or  the  product  that  suggests  it,  is  suffi- 
ciently familiar  to  serve  as  a  means  of  conveying 
to  the  minds  of  all,  a  clear  and  distinct  concep- 
tion of  the  greater  or  less  gravity  of  the  hindrance 
in  question. 

§  4.  The  application  of  the  above  principles 
to  the  use  of  a  concrete  form  of  money  is  simple. 
Any  form  of  coined  money  is  a  specific  product, 
the  greater  or  less  difficulty  of  attainment  of 
which,  being  supposed  for  the  time  being  to 
be  constant,  finally  becomes  familiar  to  all. 
Thus  it  becomes  fitted  for  employment  as  a 
common  standard,  in  terms  of  which,  not  only 
hindrances  of  every  sort,  but  also  the  greater 
or  less  utility  of  the  services  that  surmount 
these  hindrances,  may  be  expressed  and  com- 
pared. Whenever  a  sum  of  money  is  accepted 
as  compensation  for  a  service  that  surmounts 
a  hindrance,  it  shows  that  the  hindrance  in 
producing  the  article  is  the  equivalent  of  the 
hindrance  necessary  to  be  overcome  in  the 
production  of  the  metal  from  which  the  coin 
is  struck.  When  this  acceptance  of  money  is 
well-nigh  universal,  it  imparts  to  it  a  currency, 
because  it  furnishes  a  means  of  making  com- 
pensation for  an  equivalent  service.  This 


148  TRUE  NATURE  OF  VALUE 

currency  gives  it  a  utility  to  the  possessor  quite 
distinct  from  the  utility  of  the  metal  from 
which  it  was  coined. 

Almost  any  familiar  product,  the  constancy 
of  whose  difficulty  of  attainment  is  measurably 
assured,  might  perform  the  very  important 
function  of  a  standard  of  difficulty  of  attainment, 
and  consequently  of  exchange  value,  or  of  the 
utility  of  the  service  that  surmounts  this  difficulty 
of  attainment.  However,  it  is  evident  that,  to 
perform  satisfactorily  all  the  functions  of  money, 
it  must  have  qualities  other  than  mere  steadfast- 
ness in  difficulty  of  attainment.  The  experience 
of  centuries  seems  to  have  demonstrated  the 
marked  superiority  of  the  so-called  precious 
metals,  gold  and  silver,  for  this  purpose.  The 
employment  of  two  different  products  as  a 
standard,  however,  is  likely  to  furnish  difficul- 
ties. If  there  is  no  necessary  relation  between 
the  hindrances  of  these  two  products,  it  is 
possible  that  temporarily  they  might  become 
equivalents  at  a  given  ratio  of  exchange;  but 
there  is  no  reason  to  suppose  that  this  relation 
could  be  maintained.  There  is  thus  an  obvious 
difficulty  necessarily  attendant  upon  the  attempt 
to  force  a  constant  relation  in  the  qualities  of 
two  things,  that  are  independently  variable,  each 
from  the  other. 


MONEY  149 

§  5.  Thus  we  are  led  to  see  that  money  is 
primarily  a  standard  of  the  hindrances  of  other 
commodities;  that  is  to  say,  it  is  an  accepted 
unit  of  the  greater  or  less  gravity  of  the  obstacles 
and  hindrances,  that  constitute  economic  diffi- 
culty of  attainment.  That  is,  the  money  repre- 
sents, and  in  a  certain  sense  embodies,  the 
obstacles  encountered  in  the  production  of  the 
money-product.  As  such,  it  becomes  readily, 
indeed  we  might  say  instinctively,  the  accepted 
standard  in  terms  of  which  the  utility  of  a 
service  that  surmounts  an  equivalent  difficulty 
of  attainment  is  most  intelligibly  expressed. 

Since  the  sole  function  of  a  service  is  to  sur- 
mount the  obstacles  that  make  up  difficulty  of 
attainment,  and  since  the  greater  or  less  utility 
of  the  service  varies  absolutely  with  the  extent 
of  that  which  is  surmounted,  the  perfect  adapta- 
bility of  a  unit  of  hindrance  for  employment  as  a 
unit  of  exchange  value,  or  for  the  utility  of  the 
service,  is  apparent.  Not  only  is  the  unit  of 
difficulty  of  attainment  perfectly  adaptable  for 
employment  as  a  unit  for  measuring  the  utility 
of  a  service,  or  of  exchange  value,  but  it  is  diffi- 
cult to  conceive  of  any  other  means,  or  device 
whereby  intelligible  expression  can  be  given  to 
concepts  of  this  sort.  Indeed,  it  may  be  said 
that  but  for  the  fact  that  the  money  unit  is, 


150  TRUE  NATURE  OF  VALUE 

first  of  all,  a  standard  of  hindrance  it  could  not 
be  intelligently  employed  as  a  suitable  unit  for 
giving  intelligent  expression  to  changes  in 
exchange  value.  In  other  words,  it  must  be  a 
unit  in  terms  of  which  the  utility  of  a  service 
that  surmounts  the  hindrance  it  stands  for  may 
be  expressed. 

We  may  now  accept  the  conclusion  that  the 
primary  function  of  money  is  to  serve  as  a  stand- 
ard of  greater  or  less  difficulty  of  attainment. 
In  multiples  of  this  familiar  unit,  we  convey  to 
the  mind  of  another  the  extent  of  any  difficulty 
of  attainment  known  to  us,  howsoever  unfamiliar 
it  may  be  to  him.  By  reducing  hindrances  of 
the  most  diverse  character  to  this  common 
denominator  of  hindrances,  the  ratios  between 
them  are  readily  ascertained. 

We  will  recall  that  the  utility  of  a  service  that 
surmounts  a  given  difficulty  of  attainment  is 
wholly  contingent  upon  that  difficulty  of  attain- 
ment; and  is  only  limited  by  the  utility  of  the 
product.  We  now  have  a  familiar  and  assumedly 
constant  unit  of  such  difficulty  of  attainment. 
Such  a  unit,  in  the  form  of  money,  has  by  a 
well-nigh  universal  consent  been  accepted  and 
adopted  as  the  standard  best  fitted  for  use  as  a 
means  of  giving  intelligent  expression  to  con- 
cepts of  value,  Furthermore,  since  the  metal 


MONEY  151 

from  which  the  unit  is  coined  is  essential  to  the 
coined  unit,  the  mere  existence  of  this  coin  affords 
conclusive  evidence  of  the  greater  or  less  utility 
of  a  service  that  supplies  it. 

Since  the  gravity  of  the  difficulty  of  attainment 
which  must  be  overcome,  and  consequently  the 
utility  of  a  service  that  surmounts  it,  is  wholly 
contingent  upon  the  quantity  and  quality  of  the 
metal — usually  one  of  the  precious  metals — 
embodied  in  the  coin,  the  task  of  accurately 
determining  and  certifying  to  its  weight  and 
fineness  is  usually  undertaken  by  the  represen- 
tative of  all  of  us,  namely,  the  state.  As  evi- 
dence of  the  standard  quantity  and  quality  of 
the  metal  in  each  coin,  the  seal  of  the  state  is 
affixed,  and  other  precautionary  measures  are 
taken  to  guard  against  its  being  tampered  with, 
for  if,  by  the  veriest  fraction,  it  is  reduced  in 
either  quantity  or  quality  below  a  certain  arbi- 
trary limit  of  tolerance,  it  instantly  ceases  to  be 
that  which  on  its  face  it  purports  to  be;  it  is  no 
longer  even  a  legal  equivalent  of  the  difficulty 
of  attainment,  and  consequently  of  the  value  of 
the  service,  which  its  denomination  indicates. 

Finally,  some  writers1  wrongly  regard  as 
inherent  properties  of  a  product  (such  as  money) 
the  utility  of  the  service  that  surmounts  the 

*  J.  B.  Clark,  op.  ctt.,  p.  79. 


152  TRUE  NATURE  OF  VALUE 

difficulty  of  attainment  of  this  product.  The 
error  of  this  position  is  shown  by  the  fact  that 
the  utility  of  money  as  a  means  of  making  com- 
pensation for  services  rendered,  remains  unim- 
paired, even  though  the  money-product  (as  for 
example,  a  legal-tender  note)  has  no  inherent 
qualities  to  which  utility  can  be  attached. 

§  6.  Clearly  enough  it  is  only  by  comparison 
that  we  are  able  to  convey  to  the  mind  of  another 
a  concept  of  the  quantitative  gravity  of  a  given 
hindrance,  as  it  lies  in  our  own  mind.  Thus,  we 
may  say,  the  gravity  of  a  given  hindrance  equals, 
or  bears  a  certain  relation  to,  the  gravity  of 
certain  other  hindrances  with  the  gravities  of 
which  he  is  supposedly  familiar.  If  his  capacity 
to  surmount  the  hindrances  cited  for  comparison 
is  on  a  perfect  parity  with  our  own — which  is  in 
the  highest  degree  improbable — then,  and  then 
only,  will  we  succeed  in  accurately  conveying 
to  the  mind  of  another  a  true  conception  of  the 
quantitative  gravity  of  the  hindrance  in  question, 
as  it  lies  in  our  own.  Thus  it  is  that,  in  the 
absence  of  an  acceptable  hindrance-unit,  a 
necessary  preliminary  to  every  contemplated 
exchange  would  be  an  effort  to  reach  a  mutually 
satisfactory  agreement,  by  means  of  a  direct 
comparison  between  the  quantitative  gravities 


MONEY  153 

of  the  two  hindrances  involved ;  this  would  be  a 
task  that,  in  the  event  of  a  wide  difference  in  their 
characters,  would  be  beset  with  many  difficulties. 
With  the  normal  man  available  for  reference 
as  to  the  relative  gravities  of  hindrances,  it  seems 
more  than  probable  that,  as  a  means  of  avoiding 
the  inconveniences  attendant  upon  the  constantly 
recurring  necessity  for  determining  the  quantita- 
tive ratios  between  the  gravities  of  a  multiplicity 
of  hindrances,  society  would  be  quick  to  seek 
the  relief  afforded  by  the  comparatively  simple 
expedient  of  selecting  some  familiar,  but  specific 
and  typical  hindrance,  whose  quantitative 
gravity  as  revealed  by  the  cost  to  the  normal  man, 
would  be  known  to  all.  A  hindrance  of  this  sort 
once  agreed  upon,  would  find  instant  employ- 
ment as  a  unit,  or  standard,  in  terms,  multiples, 
and  ratios  of  which  the  quantitative  gravity  of 
objective  hindrance  of  every  sort  and  character 
could  be  readily  expressed  and  as  readily  under- 
stood by  all.  While  in  the  nature  of  the  case 
it  will  be  difficult,  if  not  impossible,  to  secure 
absolute  constancy  in  the  gravity  of  the  hindrance- 
unit,  this  is  not  a  matter  of  importance  in  deter- 
mining the  relative  gravities  of  any  two  or  more 
hindrances  at  any  given  time  and  place,  when 
it  must  bear  the  same  quantitative  relation  to 
one  hindrance  that  it  does  to  others. 


154  TRUE  NATURE  OF  VALUE 

So  inseparably  associated  with  the  hindrance- 
unit  is  the  product,  which  is  or  may  be  the  only 
tangible  result  of  surmounting  it,  that  in  time 
the  product  itself  becomes  the  accepted  symbol, 
in  terms  of  which  the  hindrance-unit,  or  its 
quantitative  gravity,  is  commonly  expressed. 
That  this  unit  would  be  equally  well  adapted  for 
employment  as  a  means  of  giving  intelligible 
expression  to  normal  or  competitive  cost-rela- 
tions is  apparent,  since  their  relation  to  the 
gravities  of  objective  hindrances  is  always 
constant.  No  less  perfectly  adapted  would  be 
this  unit,  or  the  product  which  is  its  symbol, 
for  employment  as  a  unit  or  standard  of  value. 
For,  as  is  the  quantitative  gravity  of  a  hindrance, 
such,  in  the  very  nature  of  the  case,  must  be  the 
quantitative  utility  of  the  service  which,  by 
surmounting  it  averts  the  cost-impairment  that 
otherwise  must  have  attended  the  production  or 
acquisition  of  the  needful  product.  Service- 
utility,  that  is,  the  utility  of  the  service  which 
by  surmounting  the  objective  hindrances  inci- 
dent to  the  rendering  available,  or  production, 
of  a  needful  product,  is  identical  with  that  form 
or  variety  of  utility,  that,  as  Professor  Clark  has 
so  ably  pointed  out,  "cannot  be  dissociated  from 
value."3  The  truth  of  this  should  now  be 

'  Op.  cit.,  p.   73. 


MONEY  155 

readily  apparent  to  all  who  have  had  the  patience 
to  follow  this  discussion. 

That  our  typical  and  representative  hindrance- 
unit,  in  terms  of  which  the  gravities  of  hin- 
drances of  every  sort  may  be  intelligently  ex- 
pressed, would  be  perfectly  adapted  to  perform 
many  of  the  most  important  functions  of  money, 
becomes  apparent  when  we  reflect  that  "normal 
cost,"  which,  as  has  been  seen,  is  wholly  con- 
tingent upon  the  quantitative  gravity  of  objec- 
tive hindrances,  is  the  only  rational  basis  of  that 
service-utility,  which,  in  its  last  analysis,  gives 
value.  Without  stopping  to  discuss  the  matter 
further,  it  may  be  said  that  but  for  the  fact  that 
the  money  unit  is,  first  of  all  a  unit  or  standard 
of  the  quantitative  gravity  of  the  hindrance 
to  be  surmounted  in  producing  the  metal  from 
which  it  is  coined,  it  could  not  serve  as  a 
quantitative  unit  of  the  utility  of  the  service  that 
surmounts  the  hindrance  of  the  metal. 

Primarily,  then,  the  money  unit  is  a  standard 
of  objective  hindrance.  As  such  a  unit  it  neces- 
sarily varies  directly  with  the  gravity  of  the 
hindrance  it  represents.  If  a  hindrance  to  be 
surmounted  in  the  production  of  the  metal  from 
which  a  coin  is  struck  increases  in  gravity,  the 
value  of  the  coin — meaning  thereby  the  utility 
of  the  service  that  supplies  it — must  proportion- 


156  TRUE  NATURE  OF  VALUE 

ately  appreciate.  If  its  gravity  decreases,  the 
value  of  the  coin  must  proportionately  depreciate. 
This  law  is  as  irrevocable  as  the  traditional  law 
of  the  Medes  and  Persians.  A  perfect  compre- 
hension of  its  operation  makes  clear  the  insur- 
mountable difficulties  attendant  upon  the  main- 
tenance of  the  double  money  standard,  as  before 
observed,  which  would  necessarily  involve  the 
maintenance  of  fixed  and  unvarying  relation  be- 
tween two  independently  variable  hindrances. 

But,  in  view  of  the  fact  that  the  normal  man 
is  largely  an  abstract  conception,  where  are  we 
to  look  for  data  so  authoritative  that,  in  the  face 
of  conflicting  interests,  the  parties  to  a  contem- 
plated exchange  of  product  for  product  will  be 
enabled  on  a  basis  of  equivalence  in  the  hin- 
drances, to  reach  a  mutually  satisfactory  agree- 
ment as  to  a  true  quantitative  relation  between 
these  hindrances  ?  Our  reply  is,  that  society 
through  free  competition  has  given  us  a  better 
means  than  the  normal  man.  Not  only  does  free 
competition,  through  "competitive  cost,"  afford 
the  requisite  data,  but  it  commands  the  accept- 
ance of  its  decrees  by  enforcing  the  penalty  of 
loss  upon  all  who  refuse  or  neglect  to  observe 
them.  Under  free  competition,  each  individual  for 
himself  makes  voluntary  choice  of  the  character 
of  the  hindrances  against  which  his  productive 


MONEY  157 

energies  shall  be  directed.  If  he  errs  in  judg- 
ment, he  pays  the  penalty  in  loss;  if  he  chooses 
rightly,  he  reaps  his  reward  in  profit.  By  cul- 
tivating his  capacity  in  a  given  direction,  it  be- 
comes relatively  high,  not  only  when  compared 
with  his  own  capacity  for  other  things,  but  as 
well  when  compared  with  the  capacities  of  his 
associates  to  surmount  the  same  or  equivalent 
hindrances. 

While  it  is  not  reasonable  to  suppose  that  an 
intelligent  being  wrill  purposely  lower  his  capaci- 
ties in  any  direction  for  the  apparent  increase  in 
profit  which  might  accrue,  each  will  find  it  the 
course  of  wisdom  to  cultivate  his  capacity  to 
the  utmost  limit  in  the  vocation  of  his  choice. 
As  a  consequence,  the  productive  capacity 
of  society  as  a  whole  would  be  raised  to  the 
highest  level.  Under  free  competition  "com- 
petitive cost"  is  the  final  arbiter  of  the  relative 
gravities  of  hindrances.  As  the  productive  capa- 
cities of  society  as  a  whole  improve,  the  relative 
gravity  of  hindrances  proportionately  decreases. 


METALLIC  AND  PAPER  MONEY 


CHAPTER  XIII 
METALLIC  AND   PAPER  MONEY 

§  i.  Primarily  money,  as  has  been  shown,  is  a 
unit,  or  standard,  of  quantitative  hindrance.  In 
other  words,  it  is  a  commonly  accepted  unit  of  the 
quantitative  gravity  of  the  objective  hindrances 
that  constitute  economic  price.  As  is  the  gravity 
of  the  obstacles  encountered  in  the  production  of 
that  which  constitutes  the  money  unit,  such,  in 
the  nature  of  the  case,  is  the  quantitative  gravity 
of  the  price-hindrance  the  money  unit  represents, 
and  in  a  certain  sense  embodies.  As  a  familiar 
unit  of  quantitative  price-hindrance  it  is  per- 
fectly adapted  to,  and  readily  becomes,  the  ac- 
cepted unit  or  standard,  in  terms  of  which  the 
utility  of  a  service  that  surmounts  its  own  or 
equivalent  hindrances  is  most  intelligibly,  and 
therefore  most  conveniently,  expressed. 

Since  the  sole  function  of  a  service  is  to  sur- 
mount the  objective  hindrances  that  constitute 
economic  price-hindrance;  and  since  the  quan- 
titative utility  of  a  service  that  surmounts  it  is 
wholly  contingent  upon  the  gravity  of  the  obsta- 
cles surmounted,  the  perfect  adaptedness  of  the 
unit  of  price-hindrance  for  employment  as  a  unit 
of_service-utility,  or  value,  becomes  readily  ap- 

161 


1 62  TRUE  NATURE  OF  VALUE 

parent.  Not  only  is  the  unit  of  price-hindrance 
perfectly  adapted  for  employment  as  a  unit  of 
quantitative  value  or  service-utility,  but  it  is 
difficult  to  conceive  of  any  other  device  whereby 
intelligent  expression  can  be  given  to  concepts  of 
this  sort.  Indeed  it  may  be  said,  that,  but  for  the 
fact  that  the  money  unit  is,  first  of  all,  a  standard 
of  price-hindrance,  it  could  not  be  intelligently 
employed  as  a  quantitative  unit  or  standard  of 
service-utility,  or  value.  That  is  to  say,  it  could 
not  become  the  commonly  accepted  unit,  or 
quantitative  standard,  in  terms,  ratios,  and 
multiples  of  which  the  utilities  of  services  that 
surmount  objective  hindrances  of  every  sort 
and  character  could  be  intelligibly  expressed. 
Quantitative  hindrances  expressed  in  terms  of 
money  is,  in  general  economic  usage,  termed 
Price. 

As  is  the  quantitative  gravity  of  the  objective 
hindrances  which  it  is  necessary  to  surmount  in 
order  to  render  a  needful  product  available  for 
use,  such,  in  the  nature  of  the  case,  must  be  the 
value,  or  utility  of  the  service  that  surmounts 
them.  To  know  the  utility  of  a  service,  which, 
by  surmounting  the  price-hindrance  of  any  given 
product,  renders  it  available  for  consumption  or 
exchange,  it  is  essential  to  know  the  gravity  of 
the  specific  hindrance  upon  which  the  service 


METALLIC  AND   PAPER  MONEY          163 

is  based.  In  the  absence  of  information  upon 
this  point,  we  shall  be  without  intelligent  data 
upon  which  to  base  a  rational  conclusion  as  to 
that  which  by  universal  custom  is  termed  the 
"value"  of  the  product  under  consideration. 
That  is  to  say,  there  can  be  no  intelligible  mea- 
sure of  that  service-utility  (which  in  its  last 
analysis  is  value)  other  than  that  found  in  the 
quantitative  gravity  of  the  objective-hindrances 
such  service  must  surmount  in  rendering  a 
needful  product  available  for  consumption,  or 
exchange. 

Money  is  some  specific  product,  the  quanti- 
tative gravity  of  whose  hindrances,  being  re- 
garded as  substantially  constant,  becomes  in 
time  measurably  familiar  to  all,  if  not  through 
actual  experience  in  surmounting  them  at  least 
through  familiarity  with  its  quantitative  relation 
to  other  hindrances  in  the  open  market.  It  is 
thus  perfectly  adapted  for  employment  as  a 
unit,  or  standard,  in  terms  of  which,  not  only 
the  gravities  of  price-hindrances  of  every  sort 
but  the  utilities  of  services  that  surmount  them, 
may  be  expressed  and  understood. 

The  fact  of  the  well-nigh  universal  acceptance, 
or  currency,  of  money  as  compensation  for 
services  that  surmount  other  but  equivalent 
hindrances,  imparts  to  it  a  utility  as  a  medium 


164  TRUE  NATURE  OF  VALUE 

of  exchange,  quite  apart  from  the  utility  of  its 
properties  or  qualities  for  other  purposes. 

§  2.  In  every  discussion  of  the  money  question 
it  is  convenient,  but  confusing,  to  mix  up  two 
things  that  ought  to  be  kept  separate:  (i)  The 
amount  of  utility,  which,  having  its  origin  in, 
by  right  attaches  only  to,  the  service  that  has 
rendered  the  product  available  for  use,  or  ex- 
change, and  (2)  the  utility  of  the  product  itself; 
and  the  former  ought  not  to  be  transferred  to 
the  latter.  Because  it  has  been,  time  out 
of  mind,  convenient  to  assign  the  utility  of  the 
service  to  the  product  itself,  the  confusion  above 
described  is  a  natural  result.  So  obscured  by 
the  antiquity  and  the  universality  of  this  prac- 
tice of  treating  value  as  an  inherent  property 
of  needful  products  has  the  subject  become,  that 
society  seems  long  since  to  have  lost  sight  of 
both  the  origin  and  the  true  significance  of  the 
phenomena  which  the  term  suggests. 

Thus,  to  the  present  day,  the  chief  argument 
advanced  in  advocacy  of  metallic  or  coined 
money  over  an  authoritative  promise  to  pay 
metallic  money  is  based  upon  the  assumption 
that  that  most  mysterious  but  evanescent  fluid, 
value,  actually  inheres  in  the  metallic  money, 
while  the  promise  to  pay  is  at  best  but  an  author- 


METALLIC  AND   PAPER  MONEY          165 

itative  declaration,  or  fiat,  of  inherency,  which  in 
the  nature  of  things  cannot  exist.  So,  too,  in  the 
present-day  discussion  of  the  relative  values  of 
gold  and  silver  coins,  we  are  gravely  informed  by 
politicians,  legislators  and  administrators  of  high 
and  low  degree,  that  the  "  inherent  value  "  of  the 
gold  dollar  is  (approximately)  double  that  of  the 
silver  dollar;  and,  if  asked  to  explain  the  cause 
of  this  apparent  anomaly,  they  will  gravely 
inform  us,  that  it  is  due  to  the  fact  that  the 
"inherent  value"  of  the  metal  from  which  the 
gold  coins  are  struck  is  double  that  of  the  metal 
in  the  silver  coins  of  the  same  denomination; 
or,  if  they  wish  to  be  extremely  accurate,  they 
will  inform  us  that  the  "intrinsic  value"  of 
23.22  grains  of  pure  gold  is  double  the 
"intrinsic  value"  of  371.25  grains  of  pure 
silver. 

§  3.  The  utter  absurdity  of  the  contention  that 
value  "inheres  in,"  and  is  therefore  a  permanent 
and  abiding  quality  of  the  precious  metals,  or 
that  it  is  "intrinsic"  and  pertains  to  the  very 
nature  of  the  gold,  or  the  silver,  from  which  at 
the  present  day  nearly  all  coins  are  struck,  be- 
comes apparent  when  we  reflect  upon  the  daily, 
even  hourly,  fluctuations  in  their  relative  values 
in  the  open  markets  of  the  world,  wherein  is 


1 66  TRUE  NATURE  OF  VALUE 

found  the  final  test  of  the  relative  values  of  all 
products.  Indeed  to  argue  that  value  "in- 
heres in, "  or  is  an  intrinsic  property  of,  gold  and 
silver,  is  to  contend  that  the  very  natures  of  these 
products  have  undergone  a  most  remarkable 
change  since  1871.  Thus  for  upward  of  40 
years  prior  to  that  time,  the  412.5  grains  of  silver 
of  standard  (TV)  fineness,  had  slightly  greater 
value  in  the  coinage,  than  25.8  grains  of  gold 
of  equal  fineness.  As  a  consequence,  and  in 
accordance  with  the  law  governing  such  matters, 
as  formulated  by  Sir  Thomas  Gresham,  the 
possessor  of  silver  bullion,  having  found  that  it 
had  greater  utility  for  other  purposes  than  it  had 
as  money,  knew  it  would  be  to  his  disadvantage 
to  employ  it  as  money.  As  a  consequence, 
silver  coins,  which,  during  this  period  com- 
manded a  premium  for  employment  as  bullion, 
were  withdrawn  from  circulation. 

But  where  are  we  to  look  for  an  explanation 
of  this  most  radical  change  in  what  is  termed 
the  relative  values  of  these  two  metals,  whose 
"inherent"  and  "intrinsic"  properties,  must  in 
the  nature  of  things  have  been  the  same  in  1896, 
as  they  were  during  the  period  from  1832  to 
1871  ?  The  answer  is  found  in  the  fact  that  so 
radical  were  the  changes  that  had  taken  place 
in  the  conditions  that  determine  the  relative  grav- 


METALLIC  AND   PAPER  MONEY          167 

ities  of  the  competitive  hindrances3  necessary  to 
be  surmounted  in  ministering  to  the  demand 
for  these  two  metals,  that  in  1896  the  gravity 
of  the  greatest  hindrance  it  was  necessary  to 
surmount,  in  order  to  supply  412.5  grains  of 
standard  silver,  was  approximately  but  one-half 
as  great  as  that  attendant  upon  supplying  25.8 
grains  of  standard  gold.  It  seems  a  self-evident 
proposition,  that  under  such  conditions  the 
utility  of  a  service  which,  by  surmounting  the 
objective  hindrances  incident  to  rendering  the 
required  amount  of  gold  available  for  coinage, 
must  be  double  that  attendant  upon  rendering 
the  requisite  amount  of  silver  available  for  a  like 
purpose.  The  utter  absurdity  of  the  supposi- 
tion that  these  changes  in  the  conditions  attend- 
ant upon  the  production  of  these  two  metals, 
could  operate  to  effect  changes  in  their  real 
natures,  or  in  their  elementary  properties,  is  too 
ridiculous  for  serious  consideration. 

§  4.  Much,  if  not  all,  the  confusion  attendant 
upon  the  discussion  of  the  money  question  dur- 
ing the  last  half-century,  if  not  for  all  time,  has 
arisen  from  the  confirmed  practice  of  carrying 

3  By  "  competitive  hindrance  "  is  meant,  as  previously  explained, 
the  greatest  hindrance  necessary  to  be  surmounted  in  order  to 
meet  the  demand  for  a  given  product  at  the  existing  ratio  of  ex- 
change between  it  and  other  products  in  the  open  market. 


1 68  TRUE  NATURE  OF  VALUE 

over  to  the  product  as  an  inherent  property  of 
the  metallic  coin  so  much  of  usefulness  as  equals 
the  utility  of  a  service  that,  by  surmounting  the 
objective  hindrances  attendant  upon  its  acquisi- 
tion, has  rendered  it  directly  available  for  coin- 
age. As  is  the  quantitative  gravity  of  the  com- 
petitive hindrance  surmounted  in  the  production— 
or  rendering  available — of  the  metal  from  which 
a  piece  of  money  is  coined,  such,  in  the  very 
nature  of  the  case,  is  the  quantitative  gravity  of 
the  price-hindrance  the  coin  stands  for;  such,  too, 
must  be  the  quantitative  utility  of  the  service- 
usually  and  wrongly  treated  as  an  inherent  and 
abiding  property  of  the  product — which  by 
surmounting  this  price-hindrance  renders  this 
metal  available  for  coinage.  In  other  words,  as 
is  the  "normal,"  or  "competitive,"  cost  averted 
by  supplying  this  metal,  such,  in  the  nature  of 
the  case,  is  the  utility  of  a  service  that,  by 
supplying  it  to  another,  averts,  or  relieves  him 
from,  the  necessity  of  submitting  to  this  cost, 
as  a  condition  of  acquiring  it. 

Since  the  quality  (or  fineness)  is  of  no  less 
importance  than  its  quantity,  as  a  factor  in  de- 
termining the  quantitative  gravity  of  the  price- 
hindrance  which  a  coin  represents,  the  utmost 
care  is  exercised  in  determining  both  its  weight 
and  its  fineness.  By  this  means,  we  secure  our 


METALLIC  AND   PAPER  MONEY          169 

nearest  approach  to  the  practically  unattainable 
— a  constant  and  unvarying  standard  of  quanti- 
tative hindrance,  as  a  basis  for  a  like  standard 
of  that  service-utility,  which  gives  value. 

§  5.  To  provide  against  deception  and  fraud 
through  light  weight  or  debasement  of  the  metal 
employed  for  coinage,  the  state  as  the  represen- 
tative of  all  of  us,  usually  assumes  the  task  of 
coining  the  money  units.  Under  free  coinage— 
that  is,  where  the  government  imposes  no 
seigniorage  for  its  services — that  which  passes 
for  the  value  of  the  coined  unit  will  be  on  a 
perfect  parity  with  the  value  of  the  bullion  from 
which  it  is  coined. 

In  the  event  of  a  seigniorage  charge,  however, 
—that  is,  where  the  state  demands  compensa- 
tion for  the  service  it  has  rendered — the  gravity 
of  the  price-hindrance  each  coin  truly  represents 
will  exceed  the  value  of  the  bullion  from  which  it 
is  struck  by  the  sum  of  this  charge.  As  a  con- 
sequence, while  a  seigniorage  charge  wrorks  no 
injustice,  it  would  tend  to  render  it  unprofit- 
able for  metal  workers  to  resort  to  even  full- 
weight  coins  for  their  raw  material. 

While  the  state  may  very  properly  determine 
the  quantity  of  the  alloy  employed  in  the  coinage, 
and  arbitrarily  give  a  name  to  each  coin  struck, 


1 70  TRUE  NATURE  OF  VALUE 

it  is  quite  beyond  the  province  of  the  state,  quite 
beyond  the  province  of  any  ruler,  council,  or 
legislative  body,  to  fix,  or  control  the  value  of 
the  coined  unit.  While  the  name,  stamp,  or  seal 
borne  by  each  coin  may  usually  be  accepted  as 
conclusive  evidence  of  the  exact  quantity  and 
quality  of  the  metal  it  contains,  its  true  value  is 
absolutely  contingent  upon  the  gravity  of  the 
"competitive  hindrance,"  or  hindrance  of  great- 
est gravity,  which  it  will  be  necessary  to  sur- 
mount, in  order  to  maintain  the  existing  relation 
between  the  demand  for  and  supply  of  the  metal 
from  which  the  coins  are  struck. 

Though,  as  has  been  said,  the  legend  stamped 
upon  the  coin  may  usually  be  accepted  as  con- 
clusive evidence  of  the  quantity  and  quality  of 
the  metal,  it  is  after  all  but  prima  facie  evidence 
of  the  original  intent.  Should  actual  test  reveal 
either  debasement  of  the  coin,  below  the  legal 
standard  of  fineness,  or  lightness  of  weight,  be- 
low an  arbitrary  limit  of  tolerance,  the  coin 
would  be  but  a  pretense  of  what  it  proclaimed 
itself  to  be,  and  as  a  consequence  a  penalty  would 
attach  to  passing  it  at  its  face  value.  On  the 
other  hand,  should  the  coin  have  an  overweight 
of  metal,  a  most  improbable  supposition,  it 
would  be  worth  proportionately  more  as 
bullion  than  as  coin.  The  result  would  be 


METALLIC  AND   PAPER  MONEY          171 

its  immediate   conversion    into    bullion  by   its 
possessor. 

§  6.  Concerning  bimetallism,  or  the  concur- 
rent circulations  of  coins  struck  from  two  dif- 
ferent metals,  independently  variable  as  to  the 
gravities  of  their  hindrances,  this  may  be  said. 
If  the  competitive  hindrance  necessary  to  be 
surmounted  in  order  to  render  25.8  grains  of 
standard  gold  available  for  the  coinage  of  a 
gold  dollar  is  the  exact  equivalent  of  the  com- 
petitive hindrance  necessary  to  be  surmounted 
in  order  to  render  412.5  grains  of  standard  silver 
available  for  the  coinage  of  a  silver  dollar,  then 
must  the  gold  dollar  and  the  silver  dollar  repre- 
sent hindrances  of  equivalent  gravity;  and  this 
being  true,  each  must  represent  the  same  unit 
of  value,  or  service-utility.  If,  however,  the 
gravities  of  these  two  competitive  hindrances 
differ  in  degree,  no  power  on  earth  below  or  in 
Heaven  above  can  make  the  utility  of  a  service 
that  surmounts  one  of  these  hindrances  the 
equivalent  of  that  which  surmounts  the  other  of 
them.  Furthermore,  lacking  equivalence  in 
value  they  cannot  freely  circulate  side  by 
side  at  their  face  value.  That  is  to  say,  in 
accordance  with  Gresham's  Law,  the  money 
of  greatest  value  will  be  withdrawn  from 


172  TRUE  NATURE  OF  VALUE 

circulation  as  money,  and  disposed  of  as 
bullion. 

The  concurrent  circulation  of  subsidiary 
coins,  or  token  money,  side  by  side  with  coins  of 
greater  value,  far  from  discrediting  the  universal 
applicability  of  Gresham's  Law,  serves  to  con- 
firm it.  As  experience  has  shown,  it  is  only 
through  a  governmental  monopoly  of  the  right 
to  issue  coins  of  this  character,  that  they  are  pre- 
vented from  usurping  the  field  as  a  money  of 
account,  since  the  full-weight  standard  coins 
would  bring  a  premium  in  the  depreciated  money 
as  bullion. 

The  4i2.5-grain  silver  dollar  of  our  coinage  is 
a  case  in  point.  Though  originally  intended 
for  no  such  ignoble  purposes,  the  unparalleled 
reduction  in  the  relative  gravity  of  the  competi- 
tive price-hindrance  necessary  to  be  surmounted 
—as  compared  with  gold — in  order  to  meet  the 
demand  for  the  silver  from  which  it  is  coined, 
it  has  so  fallen  from  its  former  high  estate  that, 
in  order  to  prevent  its  driving  gold  from  the  field 
as  the  money  of  account,  the  state  has  arbitrar- 
ily restricted  its  volume  to  the  demands  of  trade 
for  minor  transactions.  In  short,  the  "dollar 
of  our  fathers"  is  no  longer  a  standard  of  value 
(based  upon  the  gravity  of  the  objective  hin- 
drances it  is  necessary  to  surmount  in  order  to 


METALLIC   AND   PAPER  MONEY          173 

supply  the  metal  from  which  it  is  coined),  but 
it  is  a  subsidiary  coin,  chiefly  useful  as  a  means 
of  conducting  small  transactions.  In  passing, 
it  may  be  added  that,  owing  to  popular  mis- 
conception as  to  the  character  and  nature 
of  the  phenomena  of  value,  this  dollar  is  a 
serious  menace  to  the  financial  honor  of  the 
nation. 

§  7.  Concerning  paper  money,  so  called,  which 
at  best  is  but  a  more  or  less  authoritative,  but 
conditional,  promise  to  pay  money  at  some 
future  time,  but  little  need  be  said.  Except  in 
the  dignity,  and  power  of  the  promissor,  the 
promise  of  a  state  to  pay  money,  differs  in  no 
essential  respect  from  a  like  promise  by  the 
humblest  of  its  subjects. 

It  should  need  no  labored  argument  to  con- 
vince one  of  the  most  ordinary  intelligence,  that 
the  promise  to  render  a  service  at  some  future 
time  is  not,  and  in  the  very  nature  of  the  case  can- 
not be,  the  ultimate  and  final  fulfilment  of  that 
promise.  No  more  should  it  be  difficult  to 
persuade  him  that  the  most  dignified  and  author- 
itative promise  to  pay  money,  is  not  the  actual 
money  promised.  True,  the  promise  may  be  as 
"good  as  money"  to  him  who  is  compelled  to 
accept  it;  indeed  it  is  not  difficult  to  conceive  of 


174  TRUE  NATURE  OF  VALUE 

conditions  under  which  it  may  be  so  much  more 
convenient  to  transport  than  the  money  prom- 
ised, as  to  command  a  premium  proportionate 
thereto.  But  under  no  conditions  can  it  be 
truly  regarded  as  the  perfect  fruition  of  the 
promise.  Since  the  bit  of  paper  upon  which  the 
promise  is  stamped  truly  represents  no  propor- 
tionate hindrance  surmounted,  and  since  of 
itself  it  has  not  that  utility  which  passes  for  its 
value  (meaning  thereby  its  compensatory  power 
in  exchange),  such  paper  rests  upon  faith  in  the 
ultimate  fulfilment  of  the  promise. 

A  case  in  point  is  found  in  the  so-called 
"greenback"  issue  with  which  all  in  this  country 
are  familiar.  While  at  the  present  time  no  one 
seems  to  doubt  the  ability,  or  the  intention,  of 
the  state  to  meet  its  promises  to  pay  the  coin 
stipulated  in  its  notes  on  demand,  it  is  not 
difficult  for  those  of  us  who  have  reached 
advanced  years  to  recall  the  time  when  the 
credit  of  the  state — faith  in  both  its  ability  and  its 
intention  to  keep  its  promises — was  at  such  low 
ebb,  that  it  required  almost  three  of  its  "prom- 
ises-to-pay"  one  dollar  to  purchase  a  single  gold 
coin  of  that  denomination,  or  the  metal  from 
which  it  was  struck ;  and  it  took  even  a  fraction 
more  to  purchase  the  silver  "dollar  of  our  fath- 
ers," or  its  metallic  content. 


METALLIC  AND   PAPER  MONEY          175 

§  8.  By  an  arbitrary,  but  as  experience  has 
abundantly  shown,  an  unwise  exercise  of  its 
powers,  the  state  can  unfortunately  compel  its 
creditors — those  who,  having  rendered  it  a  stipu- 
lated service,  are  justly  entitled  to  demand 
therefor  the  compensation  stipulated — to  ac- 
cept its  promise  to  render  this  service,  at  its  own 
convenience  in  the  place  of  the  actual  rendition  of 
the  service  stipulated.  To  mitigate,  or  in  some 
measure  to  relieve  its  creditors  from,  the  hardships 
imposed  upon  them  by  this  exercise  of  its  con- 
fiscatory  powers,  as  well  as  to  provide  for  future 
contingencies,  the  state  may,  and  does,  make  it 
compulsory  upon  the  part  of  all  its  subjects  to 
accept  tenders  of  these  promises-to-render-a- 
service  as  full  and  ample  compensation  for 
every  service  heretofore  rendered.  The  injus- 
tice that  as  a  rule  follows  in  the  train  of  the  state's 
resort  to  such  extreme  measures  as  a  means  of 
meeting  financial  difficulites  is  surpassed  only 
by  its  unwisdom.  Although  it  is  not  permitted 
the  subject-creditor  to  deny  that  the  state's 
promise  to  supply  in  the  future  the  stipulated 
hindrance-bearing  product  is  the  product  prom- 
ised, it  is  quite  beyond  the  power  of  the  state 
to  deprive  him  of  the  right  to  place  such  estimate 
as  may  commend  itself  to  his  judgment  upon  the 
compensatory  power  of  this  promise  to  render 


176  TRUE  NATURE  OF  VALUE 

future  services.  As  a  consequence  he  may,  and 
will,  demand  not  only  such  increased  compen- 
sation for  future  services  as  will  in  his  judgment 
make  ample  compensation  therefor,  but  he  will  add 
thereto  a  sum  sufficient  to  insure  himself  against 
loss  from  further  depreciation  in  the  market  value 
of  these  promises.  That  is  to  say,  he  will  add  to 
that  which  under  normal  conditions  would  have 
been  an  equitable  compensation  for  his  service,  a 
sum  fully  sufficient,  or  even  more  than  sufficient, 
to  cover  any  probable  depreciation  arising  from 
delay  in  or  uncertainty  as  to  the  ultimate  ful- 
filment of  these  promises.  An  exercise  of  this 
clearly  unpreventable  right,  by  that  which  at 
the  time  may  seem  an  insignificant  minority  of 
its  people,  marks  the  inevitable  beginning  of  an 
era  of  depreciation.  And  yet  this  paper,  since 
it  is  a  legal  tender  for  obligations  incurred, 
quickly  becomes  the  current  money  unit  of 
exchange  in  terms,  ratios  and  multiples  of  which 
the  relative  market  values  of  products  of  every 
sort  and  kind  are  most  commonly  expressed 
and  understood. 

An  inherent  weakness  of  every  form  of  fiatism 
is  found  in  the  utter  inability  of  the  state  to 
regulate,  much  less  control,  the  estimates  its 
subjects  will  put  upon  the  compensatory  power 
of  its  promises.  For  though,  as  we  have  seen, 


METALLIC  AND   PAPER  MONEY          177 

it  can  make  its  promises  to  pay  a  coined  dollar 
a  legal  tender  for  the  actual  payment  of  an 
existing  claim  for  that  coin,  it  is  powerless  to 
control  the  estimate  its  subjects  will  put  upon 
these  promises  as  compensation  for  services  yet 
unrendered. 

The  most  fruitful  sources  of  depreciation  in  the 
compensatory  power  of  the  state's  promises  and, 
incidentally,  a  justification  of  those  whose  action 
promotes  that  end,  are  found  not  only  in  the 
inconvenience  that  may  result  from  waiting  upon 
their  fulfilment,  but  also  in  the  lack  of  confidence 
in  either  its  ability  or  its  intention  to  do  so. 
While  the  depreciation  from  the  first-named 
cause  should  not  be  great,  the  slightest  suspicion 
of  the  latter  may,  and  probably  will,  quickly 
result  in  popular  repudiation  of  these  promises, 
as  an  unreliable  and  unsafe  medium  for  the 
transaction  of  business. 

The  first  symptom  of  depreciation  in  a  legal- 
tender  circulation,  consisting  of  the  state's 
promises  to  pay  money,  is  the  steady  withdrawal 
of  real  money  from  the  channels  of  trade.  This 
is  quickly  followed  by  a  permium  on  coin  as 
expressed  in  terms  of  the  discredited,  and  there- 
fore depreciated,  promise-to-pay  money. 

When  once  an  era  of  depreciation  has  set  in, 
there  is  but  one  infallible  method  by  which  the 


1 78  TRUE  NATURE  OF  VALUE 

extent  of  depreciation  can  be  determined,  and 
that  is  found  by  a  direct  comparison  between 
the  state's  promise  to  pay  the  coin  unit — say,  one 
dollar — and  the  actual  coined  dollar  promised. 
If  in  the  open  market  the  latter  commands  a 
premium — in  terms  of  the  depreciated  circulating 
medium — it  must  be  accepted  as  final  and  con- 
clusive evidence,  not  of  an  increase  in  the  com- 
pensatory power  of  the  coined  dollar,  but  of  a 
depreciation  in  the  compensatory  power  of  the 
state's  promise  to  pay  a  coined  dollar.  For  ex- 
ample, if  the  market  value  of  a  coined  dollar 
is  $1.10  in  terms  of  the  state's  promise  to  pay 
one  coined  dollar,  it  is  a  self-evident  proposi- 
tion that  the  value  of  the  coined  dollar  is  the 
equivalent  of  the  state's  promise  to  pay  one 
dollar  and  ten  cents  ($1.10). 


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